Mortgage Market Update - 8/21/2023

Why Do Mortgage Rates Continue to Push Higher?!

You know things are tough when you scroll through your favorite news feed and the first article that pops up is a headline screaming that mortgage rates are now at multi-decade highs. Unfortunately, that is the current reality we are all experiencing.

In this unpredictable environment, it is important to understand WHY rates are continuing to increase all while inflation has continued to fall. Every economist in the world was projecting mortgage rates to drop as soon as inflation started to come down. Well, inflation has dropped considerably from 9% to 3% and is inching towards the Fed’s final target goal of 2%. So why have interest rates continued to increase?!

The Fed gave us some insight last week when they released their “minutes” from their last meeting. The Fed conveyed that they are looking for signs of negative impacts on the economy resulting from their rate hikes before contemplating any rates reductions. Their focus has shifted from solely waiting on inflation to decrease to now awaiting a downturn in economic data.

Key Takeaway: Fed is clearly indicating they want to see economic pain before they consider lowering rates. Record high interest rates for credit cards, auto loans, mortgages, HELOC’s, etc will begin to have an impact on the everyday consumer. It’s only a matter of time before we see cracks in the economy, which may lead the Fed to pivot and lower interest rates.

Insurance Cost Rising To Unprecedented Levels

Don’t be surprised if you get a notice from your insurance provider that your renewal rates have increased. It’s a common occurrence we are seeing throughout the industry. The main culprit for the increase in Homeowner’s Insurance premiums: Replacement Cost. Between 2019 and 2022, the insurance industry reported a 55% increase in rebuilding and replacement costs. Reinsurance, which insurers use to mitigate risks, also increased by 30% to 40% after years of industry losses, noted Matthew Carletti from JMP Securities. Reinsurers, who have faced years of losses, are now at their limit.

Rising natural disaster frequency is also driving may insurers to exit markets and raise rates, which is impacting overall premiums. You may not think the wildfires in Lahaina or the hurricane in California would have an impact you directly. In all reality, these events do impact us all as insurance companies are incurring catastrophic losses, which ultimately lead them to raise rates to offset loses.

Key Takeaway: We are noticing increased Homeowner’s Insurance premiums from several clients that are purchasing homes. In response, we have increased our Homeowner’s Insurance quotes when providing estimates to clients. Unfortunately, we believe these higher premiums may be here to stay.

Fed Chair Powell Speaks on Friday

Powell is set to deliver a speech on the economic outlook on Friday, August 25th. It’s our chance to get his latest views on whether more interest rate hikes are needed to bring down inflation amid surprisingly strong economic growth, or if enough progress on lowering inflation has been made to hold rates steady. This speech could have a major impact on the direction of mortgage rates.

Key Takeaway: If Powell provides any indication of continuing to raise rates, expect mortgage rates to increase. If Powell signals an end to their rate hikes, expect the mortgage market to rejoice as rates should lower. Will be interesting to see how the market plays out after the speak.

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