Rates, Construction Growth, Mortgage Apps, Fed Minutes, Pending Home Sales, and PCE Inflation

Good morning and happy Friday. Jordan Keck here, your lender buddy, with your weekly market update. Starting off with interest rates virtually unchanged week over week, and not really any huge spikes or drops in the week either, going from 6.04% to 6.05% week over week. As a reminder, you've heard me say this a lot of times, this is an average for markets across the country. Specific for top-tier conventional loan purchase scenarios with 25% down or more, high dollar amounts, and a little bit of origination costs. So this is not a quote for a particular client. This is just an average indication of where market rates are moving. As far as our weekly mortgage tip, wanting to talk about the 2-1 buydown 101. So this is very different in how you'd be thinking about this compared to a permanent rate buydown. So most rate buydowns, the rough math is that for every benefit you get, it's a 4-to-1 cost, meaning it'll take about 4 years to break even. And if you're buying down 1% on your interest rate, the cost is about 4% in cost. Now that's an equation where you can come out ahead long-term if you're in the home for 5 years or more. And again, the timeframe on recovery can change a little bit depending on the market. A 2-to-1 buydown or any kind of temporary buydown, you could do a 1-0, a 1-1, 1-2, 3-2-1, doesn't matter. The math on that is very different in that you get exactly the amount of benefit you pay for. As an example, if you do it a 1.0% buydown, let's say you're about 6% rate, $400,000 loan amount, you're gonna save about $250 a month for the first year. During that year, you're saving $3,000 total. So the cost of the buydown is exactly that $3,000. So it doesn't make sense for this to be buyer-funded because it'd be like saying, hey Jordan, Here's $3,000 of my money. Can you please give it back to me slowly over the next year? That's legitimately the way the benefit works. This is a tool to be used when you have excess potential seller credit to negotiate, and you can choose to either have it go towards a lower price, go towards repairs, or go towards closing cost credits that you've already used your full amount for regular closing costs, and now you want to apply it to additional funds. If you took that $3,000 and did it towards a permanent rate buydown, you're saving a couple bucks a month. But if you want all the benefit in the first year or two, that is where a temporary rate buydown would come in play. So hopefully that's helpful way to think about it. Just another tool on how to use negotiation power with the seller, not as a tool for the buyers to self-fund and get any additional benefit than what they're paying for. Next up, we've got housing permits, starts, and completions for new construction all rising in December. Permits rose 4.3% for the month, which are down 2.2% year over year. Starts rose 6.2% for the month, down 7.3% year over year. And actual completions rose 2.3% for the month, almost flat for the year, down just 0.1%. So overall, pretty strong month for construction. Next, the MBA, the Mortgage Bankers Association, they reported that mortgage applications are significantly higher here, especially on refinances, making up about 57% of all mortgage applications week. Purchase applications fell 3% but are still up 8% year over year, but refinances rose 7% for the week and are up 132% for the year, again making up more than half of all mortgage applications right now. Next, the Fed meeting minutes from their January 28th meeting showed that they're pretty divided as far as their views on rate hikes and on the stability of the economy. Some members wanted to pause the rate cuts, with others wanting to continue cutting. Those who felt they wanted to pause were looking at the labor market as stabilizing and said that the Fed could even potentially consider hiking rates if inflation fails to decline as a way to be able to help lower inflation further because they viewed that the labor market was stable. Now, when one of the two important things to remember when looking at Fed decisions is that the Fed has a dual mandate of price stability and maximum employment. So price stability, they define as 2% core PCE inflation numbers And that's what they're shooting for. So until we get down to that number, that's still one of their mandates. The other is that employment number. So if they look at rising unemployment rates, they might waver a little bit on the inflation side and cutting interest rates if they feel like it was going to hinder them in that goal. Of course, we know during COVID and right after COVID, they said, well, screw it with employment, inflation's a bigger problem. So even if employment goes lower, we're still okay with it. So right now, they're trying very delicately to manage that mandate on both sides and get inflation down while keeping employment strong. Next, we've got pending home sales and new home sales for the month of January. Well, January's pending home sales, they were— showed a fall of 0.8% for new contracts signed in the month of January. Biggest one on this from missing the 2% gain that was expected is weather. If you look at breakdown by region, you saw a 4% increase in pending home sales in the West, 5% in the Midwest. You saw a negative 5% in the South and negative 2% in the Northeast. Of course, a lot of those big weather systems we've been hearing about. New home sales, that report was delayed due to the government shutdown. So now we just got November and December. So still a little bit of a lag on this one. November rose 15%, and off of that high number, December fell just 1.7% from the higher numbers in November. But the pace between the two months was the best in almost 4 years for new home sale pending contracts. And lastly here, PCE inflation for December was released above market estimates by 0.1%. The headline number rose 0.4% versus the 0.3% that was expected, and year over year it rose from 2.8% to 2.9%. Well, the core PCE, which we again measured as the Federal Reserve's favorite measure, that rose from 2.8% to 3%. Within the report though, an interesting stat is that 0.1% of the monthly inflation gain on the headline was due specifically to streaming services, things like Netflix and Disney Plus, which rose 19.5% in cost for the month of December alone. As always, hopefully this is helpful. Let me know if you have any clients I can help with or anybody else you think would be a great connection. Looking to continue to grow our network this year and appreciate you being a part of that. So have a fantastic weekend. We'll see you next time. Take care.