This is the newest program offered by the California Housing Finance Agency (AKA - CalHFA).…
✍🏽👀VARIABLES TO WATCH WHICH EFFECT THE RATES AND HOUSING:
✅#1 HOW INFLATION DRIVES RATES – QUICK LOOK BACK
We’ve discussed some ways to determine what the “Inflationary Numbers” look like and one of the best ways is to look at the Core Consumer Price Index (CPI). With that, when we chart it against mortgage rates we can see the movement in rates nearly mirrors that of CPI. The one ANOMALY however was when the FEDS continued to buy “MBS – MORTGAGE BACKED SECURITIES” which held on a little longer than expected in that May – August 2021 range as seen on slide. Once the FEDS stopped buying MBS and realized that the issue of INFLATION BEING REAL, then they woke up and massively tapered their purchase of MBS which then allowed rates to move upward quite rapidly. As inflationary figures declined towards tail end of 2022 we can see that rates have as well.
✅#2 WHEN WILL INFLATION PEAK?
Looking closely at the Core Consumer Price Index (CPI), which takes out “FOOD & ENERGY” to avoid from those areas that can’t be effected by external issues like weather or oil production. The Core CPI is the best way to forecast. Currently the Year Over Year figure is 6.0%. As we see Novembers lower numbers the anticipated lower Mortgage Rate improvement should follow.
✅#3 SHELTER COSTS ARE LAGGING!
If you recall, we’ve talked about Shelter Cost and how the figures are lagging in the CPI figures. Shelter makes up 39% of the Core CPI. When we look at rents Year Over Year (YOY) we see shelter is at 4.6%, but once 2022 numbers are all taken into account and those are averaged we’ll see a figure that is closer to 7.9% (see graphic).
✅30 YEAR MORTGAGE RATES VS 10 YEAR TREASURY BOND SPREAD
For the many years that I’ve been in the mortgage industry I’ve watched the 10 year treasury bond to get an idea of what mortgage rates are doing or should do. There’s been a stable relationship between the spread between the 10 year treasury note and 30 fixed mortgages (ie: spread being about 175 – 200 basis points “BPS” for nearly 30 years.
✅RECESSION COMING & KNOWING IF WE ARE IN ONE?
👉🏽👀CREDIT CARD DEBT/SAVINGS: Many have been either living off of credit cards or spending more on credit cards as their household costs increased in 2023. Also, more Americans showed increased spending from their savings accounts as well. How do we know we are in a Rescission–technically we don’t know officially as National Bureau of Economic Research declares it and it won’t be until nearly 6 – 12 months after we’ve rolled in and out of the Rescission. Credit Card debt after Stimulus money was issued has massively increased to maintain lifestyles.
👉🏽👀INVERTED YIELD CURVES:
An inverted yield curve is when a shorter term yield like a 3 month bond note vs that of a 10 year is actually higher than the 10 year. When you look at the chart you can see those years when the yield curve was negative and a Rescission occurred–again a GREAT PREDICTOR.
✅HOUSING DEMAND COMES FROM HOUSEHOLD FORMATIONS…
A household formation is created when a child moves out of home and buys one of their own. New household creations have been increasing by roughly 1.7M per year, When the mortgage rates increased to 7% many of those household formations created slowed dramatically to roughly 1.3M per year due to the concern of rates/costs/etc…
✅ARE WE EXPECTING A CRASH? WHY NOT!
👉🏽👀MARKET APPRECIATION: We hear at times in the media, from local experts and more that the concern of the housing crash is looming… Why is this very unlikely? It’s because the housing appreciation is steadily rising — it’s up 115% in the last 10 years. Some years like through beginning of Covid the housing appreciation was averaging roughly 20% year over year (note: super rare though good for those who bought prior/during…).
👉🏽👀 AFFORDABILITY: Home values have gone up by roughly 10% year over year and rates have risen by roughly double in rate — roughly 3.5% to 6.25%. On a $400K home last year that means that that same house is roughly $900 more per month. What we forget to take into account, however is that the average consumer saw a pay increase of roughly 9% which absorbed most of that increase. As we move into 2023 and rates we hope lower, a consumer sees another potential increase in pay rate and inflation/CPI fall the affordability in 2023 will be pretty awesome!
REFERENCES AS NEEDED:
🔗US Bureau of Labor Stats CPI: https://www.bls.gov/cpi/
🔗Department of Labor: https://www.dol.gov/
🔗Fed Reserve Board: https://www.federalreserve.gov/
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