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    Will Interest Rates Go Up This Year?

     

    It is hard to digest the first day of fall is just a few weeks away, and while the real estate market is showing some signs of cooling, the weather in L.A. certainly isn’t.

    In this monthly message, I like to share what I’m personally experiencing in the business, along with economic trends that affect the mortgage market.

    Here is my take this month.

    Locally, savvy clients have their eye on the ball.

    Interest rates are steady, holding at under 3% for full income documentation loans. Rates are higher for borrowers looking for alternate income documentation, commonly called non-QM loans.

    Lately, I have noticed an uptick in applications from foreign nationals who have been largely absent from the market for the last 12-14 months. Many of our existing clients are closely monitoring their loans, and it’s not just about interest rates. Time has meaning, either to extend an adjustable-rate term or a switch to a 15-year note to pay off the loan sooner.

    A Fed taper will push rates higher by the end of the year.

    There are indications that the Fed will begin slowing down its multi-trillion-dollar asset purchasing program before the end of the year. Markets will be watching not only when the Fed starts to taper but the pace at which it does so. Pulling back too fast could stall the economic recovery, and moving too slowly could fuel the inflation pressures unleashed by the reopening from the pandemic.

    I don’t anticipate that any Fed actions will result in significant interest rate increases this year on mortgage products. Still, it could hurt borrowers that rely on every tenth of a point to buy the property they want.  If this is you or you are a real estate professional with this kind of client, my advice is to pull the trigger now.

    Credit availability is strong.

    According to the Mortgage Bankers Association, mortgage credit availability increased by almost 4% in August. Of note, jumbo credit availability increased 9% to its highest level since March 2020, as more non-QM jumbo and agency-eligible high-balance loan programs were offered.

    Loan products have never been so diverse.

    Diversity is what makes the mortgage market in 2021 different from any other. I have been in business for 34 years and have never seen a more comprehensive range of loan products available – a stark contrast to the pullback we experienced in the lending market in 2020. What this means for homeowners and buyers is that there is far more borrowing flexibility. For instance, lower down payment requirements, unlimited cash-out options, and special underwriting terms for borrowers without W-2 income. This market isn’t the reckless lending we experienced before the 2008 financial crisis. Stringent lending standards and new government regulations will keep consumers safe. What we have now is lots of cash in capital markets that push lenders to be competitive to win your loan business. That’s a good thing.

    Key economic data to watch for this month:

    September 14 – Core Consumer Price Index (CPI)

    September 16 – Core Retail Sales

    September  21 – Housing Permits and Housing Starts Reports

    September 22 –  Existing Homes Sales Report, Fed Interest Rate Decision

    September 23 – New Homes Sales Report

    September 29 –  UCLA Anderson Economic Forecast Conference

    If you have put off buying that first or second home because you fear the market or have been pressed for time to start an application, I strongly encourage you to have a quick conversation with me. A 15-minute call can open a door you didn’t realize is there.