By Ryan Casey Stephens, FPQP®
Special Contributor
Have you noticed changes happening around you? My neighbor’s nice, clean home has been on market for more than 40 days, and now they’ve reduced the price. If you’ve shopped for a used car you’re likely seeing prices falling by the day. Credit interest rates of all types have sharply increased. The wheels of our great economy are becoming stuck in mud, but it’s a double edged sword. The pain we feel in the short term may save us over the long haul, but it’s too early to tell.
Let’s spend some time discussing the details in this week’s Three Things to Know.
Let’s Get This Out of The Way
As Mark Twain wrote, “If you have to eat a frog, do it in the morning and nothing worse will happen to you for the rest of the day.” Covering the subject of inflation each week is not my favorite thing to do, but the devaluing of our currency is going to be our greatest threat for some time ahead. Friday brings us the latest Personal Consumption Expenditures, or PCE, inflation data. It’s the Fed’s favorite measure and they will meet next week to discuss another rate hike. On a month-over-month basis we might see a slight increase in inflation, but the year-over-year number should decline.
First Thing to Know:
As long as we don’t receive an unexpectedly high reading, this report should have minimal effects on the market. Higher than expected PCE inflation could cause some panic, which would be negative for mortgage rates.
Signs of Slowing All Around Us
It’s becoming more apparent with each passing day that 2023 is going to be a year of very little growth. The recession that’s been predicted since last summer seems to be edging closer, and several economic reports this week will likely reinforce those expectations. From a Fed manufacturing index on Tuesday to GDP on Thursday, the consensus across the board is less production, less output, and less purchases. Friday’s personal income and personal spending numbers are also looking bleak.
Second Thing to Know:
Far from being a bummer, a slowing economy is helping combat inflation in the U.S. A cooler year can provide us a chance to recalibrate supply and demand, which should bring lower mortgage rates back as early as the summer.
Today’s Difficulties Mean More Costs Ahead
Agents and lenders alike should prepare themselves for unique challenges when buyers come back to the market later this year. The average American car payment is now a record $800 per month, past due car loans are up 27 percent so far this year, credit card debt is up 15 percent — the biggest jump since 2008, and one third of Americans are relying on credit cards to cover daily expenses.
Fannie Mae and Freddie Mac are reacting by announcing new fees and closing costs for some buyers. Beginning in May, debt-to-income ratio will affect pricing, where it previously hasn’t been considered. Other notable cost increases will apply to anyone seeking to use a second mortgage, or piggyback, to help cover down payment or avoid PMI, as well as anyone seeking a cash out refinance.
Third Thing to Know:
Fannie and Freddie are always analyzing ways to mitigate risk. With the dramatic increase in Americans using debt to make it through tough times, those entities are attempting to curtail folks seeking mortgages in ways that seem fringe or risky.
Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].
