Mortgage Rates Continue To Fall In Uncertain World, Market Commentary 11/18/2022

Market Commentary 11/18/2022

Mortgage Rates Continue To Fall In Uncertain World

Over the past several decades, the inverted yield curve has been a tried-and-true recession predictor. With some parts of the year yield at historically wide inversions, financial conditions are becoming too tight. This indicates a strong likelihood that the economy is slowly marching toward a recession. However, there is evidence to the flip side of this argument, including consistently strong employment data, decent capital spending by companies, and a rebounding stock market.

Housing has been hit pretty hard by the 4 super-sized rate hikes by the Fed, with more upset on the horizon with the additional hikes anticipated in December and early next year. The terminal rate should cross 5.00%. Some Fed officials have opined the need to go much higher to stomp out inflation.  A recent Fed study on housing speaks of the potential for a 20% adjustment to prices in specific markets.  Speaking to our market, prices will continue to come down, but the lack of inventory will set a floor for how low prices can go. As long as California continues to be a robust and diversified economy, wealth creation, weather, and opportunity will support prices better than some other parts of the country. Nevertheless, affordable housing remains a big problem on a national level, and the Fed will want to see housing prices fall. Such a decline won’t be as severe in the more undersupplied and desirable areas.

Important Update On Mortgage Products

Insignia Mortgage has located a few portfolio lenders willing to offer very sharp pencils on non-traditional loan products. These non-QM products rely on post-closing reserves more than income analysis.  Loan amounts go up to several million with a 30% down payment. Interest rates begin at 5.00% or so. We share this info because these types of products are crucial for the high-end markets, especially with the move in interest rates. Borrowers are struggling to qualify for loans due to the rapid rise in rates, and the fact that interest-only loans require an additional stress test, making it difficult for well-qualified borrowers to obtain financing. 

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These are the opinions of the author. For financial advice, please talk to your CPA or financial professional.