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Interest Rate Update | WMU 9.18.21

Woman on a bench looking at Seattle skyline
Sep 20, 2021 10:09 AM

By: Kyle Bergquist

Puget Sound Real Estate:  Interest Rate Update

Biggest reason we’re a day late this week is because I got a little distracted creating all new charts for the Charts and Data section below.  It is my hope that these charts will give greater perspective into what’s happening with our entire Puget Sound Housing Market, and the ability to see through the headlines (whatever they might be).  With that said, if there’s a datapoint or chart you think would be a good addition to these Weekly Market Updates, please let me know and I’m happy to build it out (so long as I can find the datapoints). 

Now, onto this week’s Market Update – Let’s talk about mortgage interest rates:

Inflation reports took center stage this past week in the mortgage markets.  Inflation (rather, investors’ expectations of inflation) are the biggest market mover when it comes to mortgage interest rates.  Primary reason:  Investors, endowments, hedge funds, and institutions with a bunch of cash looking to park their money somewhere safe but stay ahead of inflation are the primary investors in mortgage backed securities.  When the inflation expectation is, for example, 1%, then those investors might feel just fine buying a Fannie Mae mortgage coupon at 3% (a 2% net on inflation).  But when inflation expectations go to 2%, then all of a sudden those investors will sell out of their 3% coupons and demand 4% coupons to keep their 2% margin.  Make sense?  Cool.  Ok, now that we’re all over how inflation and mortgage interest rates interact, let’s dive into what happened this week, and what’s happening overall. 

The Pandemic caused a lot of supply bottlenecks – from computer chips (which is one reason why cars are so expensive right now), to chicken wings, to employees; we’re running out of a lot of random things right now.  And supply bottlenecks = higher prices to the consumer.  Interest rates have stayed low in the face of higher inflation over the past 6 months or so because most investors believe it’s transitory (aka temporary) as we exit the Pandemic, but we’re getting to the point where investors are starting to wonder just HOW transitory this inflation really is, and WHEN the Pandemic might actually end?  On Tuesday the Consumer Price Index came out with a reading of 5.3% - The Core Reading (which strips out food and energy prices) decreased, but only to 4%.  Mind you, mortgage interest rates being charged to homebuyers and refinancers right now is in the 3% ballpark…so if this inflation continues on much longer, investors are going to start demanding higher interest rates on their mortgage bond investments, which will cause mortgage interest rates to rise.  Thus, mortgage interest rates rose slightly this past week as concerns over exactly how long transitory may mean came to the surface. 

Summary

Are we currently sitting at the bottom of mortgage interest rates?  Kind of looks like we might be, especially given the words of my favorite economist this last week Elliot Eisenberg

The CPI rose 0.9% M-o-M in June, 0.5% in July and just 0.3% in August. Similar Y-o-Y numbers show inflation declining from 4.5% in June to 4.2% in July and 4% in August, a nice decline! But, trimmed measures of inflation, which lop off items that increase the most and least to help reveal how widespread price pressures are, show inflation rising, suggesting price pressure is spreading. I’m somewhat concerned.

WHAT YOU NEED TO KNOW FOR WHERE RATES WILL GO:

  • Good Economic News or Inflation = Bad for Mortgage Interest Rates. 
  • Bad Economic News or Deflation = Good for Mortgage Interest Rates.  

Go Hawks!

Interest Rates

Per Bankrate’ssurvey of large lenders, the 30 year mortgage interest rate fell this past week to 3.03%, with .35 in discount and origination points.
(the inflation stuff above has yet to be priced into the survey)

According to Bankrate, 30 Year Fixed Rates have fallen .31% since their 52 week high of 3.34%
(That’s a savings of $84.69 per month on a $500,000 loan!)

Mortgage interest rates April 2020 -Sept 2021 chart

Kyle’s Quick Take – Mortgage Market Week in Review

(Copied from above)

Inflation reports took center stage this past week.  Inflation (rather, investors’ expectations of inflation) are the biggest market mover when it comes to mortgage interest rates.  Primary reason:  Investors, endowments, hedge funds, and institutions with a bunch of cash looking to park their money somewhere safe but stay ahead of inflation are the primary investors in mortgage backed securities.  When the inflation expectation is, for example, 1%, then those investors might feel just fine buying a Fannie Mae mortgage coupon at 3% (a 2% net on inflation).  But when inflation expectations go to 2%, then all of a sudden those investors will sell out of their 3% coupons and demand 4% coupons to keep their margin.  Make sense?  Cool.  Ok, now that we’re all over how inflation and mortgage interest rates interact, let’s dive into what happened this week, and what’s happening overall. 

The Pandemic caused a lot of supply bottlenecks – from computer chips (which is one reason why cars are so expensive right now), to chicken wings, to employees; we’re running out of a lot of random things right now.  With supply bottlenecks comes higher prices to the consumer.  Interest rates have stayed low in the face of higher inflation because most investors believe it’s transitory (aka temporary), but we’re getting to the point where investors are starting to wonder just HOW transitory this inflation really is?  On Tuesday the Consumer Price Index came out with a reading of 5.3% - The Core Reading (which strips out food and energy prices) decreased, but only to 4%.  Mind you, mortgage interest rates being charged to homebuyers and refinancers right now is in the 3% ballpark…so if this inflation continues much longer, investors are going to start demanding higher interest rates on their investments, which will cause mortgage interest rates to rise.  Thus, mortgage interest rates rose slightly this past week as concerns over exactly how long transitory may mean. 

Are we currently sitting at the bottom of mortgage interest rates?  Kind of looks like it might be, especially given the words of my favorite economist this last week Elliot Eisenberg

The CPI rose 0.9% M-o-M in June, 0.5% in July and just 0.3% in August. Similar Y-o-Y numbers show inflation declining from 4.5% in June to 4.2% in July and 4% in August, a nice decline! But, trimmed measures of inflation, which lop off items that increase the most and least to help reveal how widespread price pressures are, show inflation rising, suggesting price pressure is spreading. I’m somewhat concerned.

WHAT YOU NEED TO KNOW FOR WHERE RATES WILL GO:

  • Good Economic News or Inflation = Bad for Mortgage Interest Rates. 
  • Bad Economic News or Deflation = Good for Mortgage Interest Rates.  

Puget Sound Real Estate:  Charts and Data

Absorption Rates per NWMLS Real Time Data

Absorption Rate is calculated as:  (Pending Sales) / (Active + Pending Sales)

SFR in Seattle

  • SFR Pending Sales in Seattle:  926 homes
  • SFR Active Listings in Seattle:  741 homes     
  • Absorption Rate for SFR in Seattle:  55.55%

Condos in Seattle

  • Condo Pending Sales in Seattle:  335 condos
  • Condo Active Listings in Seattle:  516 condos
  • Absorption Rate for Condos in Seattle:  39.37%  

NWMLS County Median Sales Prices for SFR chart

NWMLS King County Median Sales Prices for SFR

NWMLS King County Median Sales Prices for Condo Chart

NWMLS Months of Inventroy Chart

Seattle Absorption Rate for SFR chart

Seattle Absorption Rate for Condos

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