A Boost in Fed Rates Could Cause a Drop in Mortgage Rates in the Near Future

The beginning of February saw a raise of a key short-term interest rate to help bring down the inflation. The one-quarter of a percentage point, from 4.5% to 4.75%, will hopefully lower the interest rates in the long term. Many professionals in the industry already considered the raise in the rates in January even though the rates fell this January from December’s 6.38% to January’s 6.29%.

The inflation rate can influence mortgage rates so when the inflation rate is falling so will the mortgage rate. The consumer price index that was reported in December showed that overall prices increased 6.5% over the previous 12 months. This shows that the Fed definitely has an upper hand on the mortgage rates.

The Fed’s monetary policy committee will meet eight times a year and the last time they met last year all eight meetings saw an increase. During the summer and fall of 2022 there were four increases from the central bank and each increase was 0.75 percentage points.

“The Federal Reserve will continue to increase short-term rates to fight inflation, and will ultimately be successful, but it will be early 2024 before inflation reaches their 2% target,” says Michael Fratantoni, chief economist for the Mortgage Bankers Association.

If you are in the market for a HELOC, home equity lines of credit, these will go up. The quarter-point raise will cause the spike. It will be more expensive for a homeowner to borrow or repay the funds drawn. If you have a balance of $50,000, the monthly interest rate will rise by $10.42.

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The Beginning of 2023 Saw a Drop In Home Prices

Mortgage rates and home prices let up a bit at the beginning of 2023 causing the new home sales to rise from December 2022 to January 2023. New construction home sales rose 7.2% in January 2023 from December 2022. According to the US Department of Housing and Urban Development and the US Census Bureau this is still down 19.4% from the same time last year. Industry leaders are beginning to see that the housing market is stabilizing.

New single-family houses were at a seasonally adjusted annual rate of 625,000 at the end of 2022, and shot up to 670,000 in January 2023. This still does not come close to the record sales pace in March 2022 which was a rate of 831,000.

Prices of new homes are starting to slow down. The median price for a new home was $465,500 in December 2022 and fell in January 2023 to $427,500. This is .7% lower than it was the same time a year ago which came in at $430,500.

"New home sales prices dropped precipitously in January to the lowest median price since February of last year. While sales are still depressed from a year ago, this shows another crack in the housing market that should benefit potential homebuyers, especially when mortgage rates drop," says Robert Frick, corporate economist at Navy Federal Credit Union.

The existing home inventory is still low, so the new construction home listings are filling the gap according to Kelly Mangold of RCLCO. Builders are being flexible with the prices which make it a bit harder for buyers to find homes on the market to purchase. This coupled with the up and down mortgage rates has not made the market easier for buyers.

"Price adjustments and builder incentives helped to push the sales pace in a positive direction. January had the lowest level of existing home sales in over a decade-and motivated buyers are increasingly seeking new homes because there is limited resale inventory available," says Mangold.

"Mortgage rates are spooking sellers looking to upgrade when they calculate the potential increase in their monthly payments, and the hesitation to put existing homes on the market is allowing new construction homes to have less competition," explains Mangold.

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What To Consider When Purchasing a Second Home

 A second home to many is a vacation home or an investment home.  In order for it to be a smart investment, you should do your research and plan ahead.  So it will not become a financial heartache, here are several things to consider before you purchase a second home.

1. What Will You Use It For?

As mentioned before, a second home can be used for a vacation home or investment and can even be used as a secondary residence for work. You will need to decide what you are using your second home because a lender will need to know.  Investment properties are more risky for a lender while a vacation home or secondary residence are not as risky.  The secondary residency and vacation homes will usually have a lower interest rate than an investment property.

2. How WIll You Finance It?

Unless you have a chunk of cash on hand you will more than likely need to get a loan to purchase your second home.  Remember depending on what you are using your second home for will determine which loan option is right for you.  If you are purchasing a second home as a vacation home, then you will more than likely qualify for a conventional mortgage, secondary mortgage, or a jumbo loan.  If you have a current mortgage and a lot of equity in your primary home, you might be able to obtain a Home Equity Line of Credit (HELOC) or cash-out refinance.

3. Do You Have the Funds?

You want to create a budget to make sure you can afford closing costs as well as ongoing costs that come with owning a second home.  When creating the budget, keep in mind the down payment for a second home is typically a minimum of 25% of the purchase price.  Your debt-to-income (DTI) ratio is 43% or lower in order to qualify for a mortgage for a second home.  As far as homeowner insurance goes, you will need to take out comprehensive insurance on a second home no matter if it is a vacation home or you are renting it as an investment.

4. You Don’t Have To Go It Alone

To make it a bit more affordable and easier for financing, many purchase a second home with friends and family and split the costs.  In order for it to work, you need to treat the arrangement as a business.  Everyone can benefit, gain an asset and save money by splitting the costs.

5. Make a Plan for When It’s Not in Use

A second home might have times when it is not being used, so it is good to have a plan for this time.  If this is a rental income property, you need to come up with a plan if you do not find a tenant right off the bat.  If it is a vacation home, think about renting the home out to other vacationers when you are not using it. If this is the case, there are tons of management companies that can take care of the process.

If you are in the market for a second home, now might be a perfect time for you to purchase one.  Choose a realtor from the area that can help with the process from start to finish.  A local sales agent can be especially beneficial when it comes to vacation homes, as they know the area best.

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FHFA New Credit Score Rules

 The Federal Housing Finance Agency will have new guidelines for credit score models for lenders. These new guidelines will have a positive impact on many that were not approved for a loan in the past. Freddie Mac and Fannie Mae will be given the new guidelines to follow when determining if they can accept a mortgage from a lender.

Money is freed up by Freddie Mac and Fannie Mae when the agencies purchase mortgages from lenders. The lenders will then have more money freed to make home loans. Currently, Freddie Mac and Fannie Mae can only purchase conventional loans that meet certain criteria. These scores and criteria are determined by FHFA and mortgage lenders have been using FICO scores 2, 4, and 5 (these are considered outdated models).

“The mortgage industry didn’t have a choice in the matter. They were essentially forced to use older FICO scores by the FHFA. All other types of lenders have long since moved on from those legacy scoring models,” explains credit expert John Ulzheimer.

Under the new guidelines, lenders can use more up-to-date FICO scores, FICO 10T, and VantageScore. VantageScore is FICO’s direct competitor. Lenders will now only have to proved credit reports for two of the three major credit bureaus. FICO 10T and VantageScore being picked up by the new guidelines is the biggest change in a positive way.

These two sources will gather data from more sources included payments for rent, utilities or cell phone service. VantageScore also requires a shorter credit history, FICO has a six month-minimum for credit history. The source also has scores that show up for 37 million Americans that do not show up under FICO. Surprisingly these that show up only on VantageScore, more than 13 million have a credit score above 620.

Using the updated credit score modeling will also help with the racial homeownership gap. According to the Urban Institute around 53 million Americans do not have FICO scores (when using the older scoring models). Out of these 53 million, 29.5% of Black households and 27.3% of Hispanic households compared to only 16.7% of white households.

If you are in the market for a new home, check with lenders to see when you can take advantage of this updated policy. Meanwhile, choose a Realtor who can help you with the homebuying process.

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Doors for Open-Concept Living

 Creating an indoor-outdoor living space gives you tons of natural light and fresh air and is especially perfect in warmer climates. Just like an open floor plan home, an indoor/outdoor living space is perfect for entertaining and creating additional living space. Today this can be done in most any climate with the innovative glass wall systems that bring in the sunlight and panoramic views. Here are some great reasons why you should consider these great doors.

Folding glass doors are perfect for those who want to let the outdoors in as they are easy to work and let you enjoy the outdoors and indoors all at once. There are tons of glass door designs to choose from with the latest offering more glass and less frame for streamline design and uninterrupted views. Today’s folding door is not like the hard-to-pull bulky doors of yesterday. The folding doors of today have a contemporary simple design with concealed handles and hidden hinges.

“Large opening wall systems bring in natural light and fresh air and also help blur the line between interior and exterior spaces. When choosing a wall system, most customers are looking for products that offer more glass, slim profiles and sleek design,” says Tim Kelting, general manager at LaCantina Doors.

Folding doors are perfect for an open concept living because they open up your indoor space to include your outdoor space. These doors can also create bigger openings than regular patio doors and you can use the whole open space because there are no fixed panels.

“In comparison to traditional sliding doors, folding doors allow you to sacrifice interior space needed to create a pocket. In addition, folding doors are an aesthetically pleasing design element that’s both versatile and functional, making them an optimal solution,” says Kelting.

The latest folding doors by LaCantina Doors come in many looks and different designs. The range of looks will fit most any interior and exterior of your home. The hardware comes in stainless steel, bronze and black hardware finishes and there are several frame choices. The doors come in aluminum, wood, clad wood and vinyl in tons of colors.

You can open up your doors and let the indoor and outdoor space become one in for tons of entertainment space during nice weather. The glass folding doors will also give your interior extra protection from harsh elements with their updated energy efficiency. These glass doors will insulate from both cold and hot temperatures with thermal breaks helping to limit condensation.

“LaCantina’s V2 Folding Door uses a thermally controlled aluminum material, designed for climates where you want to keep either the cold or hot air out. It makes them the perfect choice for all climates and ideal for those months when the doors can be folded wide open to allow for fresh air throughout the home,” explains Kelting.

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Additions to the Kitchen That Are Eco-Friendly

 If you are in the market to update your kitchen, why not update and go green? When updating your kitchen try to choose materials and appliances that help make your life healthier and more efficient. Choosing Energy Star-certified appliances will conserve water and energy. Here are several ways you can turn your dream kitchen into a green kitchen.

1. Clean up with an energy-efficient dishwasher

Beko, a home appliance manufacturer, is known for its energy-efficient, sleek styles. They have several dishwashers that use 50% less water and 25% less energy but still clean as thoroughly as the U.S. standards for dishwashers. They do this by using their own CornerIntense sprayer which is a three-arm design that sprays water in a rectangular motion instead of the traditional circular spray. Beko also offers a feature that rinses the Beko EverClean filter which prolongs the life up to four times longer than manual cleaning. Not only do Beko’s energy-efficient models help with the environment, but they also look good and have a whisper-soft operating sound.

2. Grow Your Garden…..

Going green means you are shrinking your carbon footprint. A good way to start is by adding a countertop composter which will help reduce your food waste by around 80%! You will not only help the environment but will also deal with less trash that will end up in a landfill. If you are a gardener, this is a perfect way to get your nutrient-rich soil.

3. Find A Fresher Fridge

A fridge can become a smelly place pretty quickly. Beko’s French three-door Stainless Steel Refrigerator will help get rid of any old veggies or fruits that are smelly. This fridge comes with EverFresh + technology that copies natural lighting conditions which will extend the photosynthesis process inside your refrigerator. Your fruits and veggies can stay fresh and retain their nutrients for up to 30 days. The dual-cooling system also helps maintain the humidity levels which helps keep a freezer frost-free.

4. Stop With The Single-Use Soda Bottles

Add a SodaStream PET carbonating bottle to your list. This is a great way to create bubbles at home. This bottle can be reused for up to three years and it will save you from using thousands of single-plastic bottles which pollute and end up in our oceans.

5. Reclaim The Recycling Process

Unfortunately, even if you separate your recyclables, they are not guaranteed to end up being recycled. In fact, it has been said that up to one-third of what we put in recycling bins end up in landfills. Beko’s Lass at-home recycler is a great way to make sure this does not happen by finding a way for every scrap to be repurposed. When you toss a bottle, can, or other items into the Lass at-home recycler, it does the guesswork for you by using sensors to determine if the waste can be recycled. It also goes as far as to wash items that can be recycled, grind it down, and store the remaining materials. Although this product will not be for sale to the public until 2024, it can be reserved as part of Beko’s pre-sale phase.

6. Flex Your Green Thumb

A garden can be grown inside your home, using the AeroGarden by Beko. The machine uses little local flora for an indoor hydroponic herb garden. There is no experience necessary when it comes to gardening. You simply drop in seed pods and then just add plant food and water. The LED light and quiet water pump will do the rest until you have greens to eat such as basil, oregano, romaine lettuce and more.

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The Housing Market Today

 At the end of 2022, the housing market was still weakening due to buyers not being able to afford home prices due to the spike in home prices coupled with the rising mortgage interest rates. NAHB Chief Economist Robert Dietz reported that at the beginning of 2023, the 30-year fixed mortgage rate was down from November 2022 to 6.5% from 7.1%.

NAHB believes that around 18 million households have been priced out of the current market. The decline in affordability is clearly reflected in current housing sales statistics: The volume of existing home sales in November 2022 was 35% lower than in November 2021. The Census data shows that new home sales were down 15% on a year-to-date basis.

Along with the pricing and interest rate comes low inventory. More construction is needed over a long-term period. According to the National Association of Home Builders, their new study reports that the current housing market is underbuilt by 1.5 million homes. Single-family builder sentiment, which is measured by the NAHB/Wells Fargo Housing Market Index (HMI), has been falling every month since December 2021. Unfortunately, this has been the lowest reading they have seen since 2012 and close to 62% of builders are offering some form of sales incentives to entice home buyers.

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