Mortgage rates fluctuate due to rate hikes and jobless claims, affecting homebuyers’ purchasing power.

As we eagerly await the Federal Reserve’s decision on rate hikes in their upcoming meeting, we can’t help but wonder about the impact on the California housing market. Inflation concerns are still lingering, keeping mortgage rates on the higher side. However, the recent rate hike by the Bank of Canada and unexpected jobless claims have provided some relief and pushed rates down. We hope the Fed will maintain the policy rate, especially if we see a hotter-than-expected Consumer Price Index on Tuesday. A pause in rate hikes would be a welcome sign, bringing stability to the supply and demand of homes.

Jobless Claims on the Rise

Jobless claims reached their highest level since October 2021, that’s not exactly the news we were hoping for. About 261,000 people filed for unemployment benefits in early June, exceeding economists’ expectations. The increase was most noticeable in California and Ohio, with the Golden State leading the pack. While one week doesn’t make a trend, it could signal a recession looming. From a bond market perspective, this could be a reason for the Federal Reserve to hold off on a rate hike. Let’s hope things turn around soon.

Mortgage Rates: Up and Down, but Mostly Up

Mortgage rates have been on a rollercoaster ride lately. The Bank of Canada raised rates, causing some fluctuations, but downbeat jobless claims data decreased the likelihood of a fed funds rate increase. It’s been a back-and-forth battle. We expect interest rates to remain elevated as we eagerly await inflation data and the Fed’s decision on rate hikes. Buckle up, folks!

Foreclosure Activity: Not Great, but Not Terrible

Foreclosure filings in May 2023 saw a spike, increasing by 7% from the previous month and 14% from last year. ATTOM Data reported that 1 in every 3,967 housing units in the U.S. had a foreclosure filing. Although this upward trend is concerning, we must remember that it’s still far below the levels seen during the Great Recession. In California, foreclosure starts were significantly lower than their peak in 2009. While this may add a few more listings to the market, it won’t significantly impact the tight supply conditions or home prices in the near term.

Home Equity Takes a Hit

Home equity has declined as home prices dropped, resulting in a year-over-year loss of 0.7% in Q1 2023. It’s the first decline since 2012 at the national level. About 2.1% of mortgaged properties (1.2 million homes) were “underwater” in Q1 2023. This is a slight increase from the previous year but remains relatively low compared to the peak of 26% in 2009. However, with home prices likely hitting their bottom in Q1 2023, we can expect home equity to improve as prices bounce back over the next year.

Exploring New Horizons

In search of affordability and accessibility, more homebuyers are looking outside their neighborhoods. According to a report by Realtor.com, nearly 60% of all listings page views from the top 100 metropolitan areas in Q1 2023 were for properties in different regions. This represents a 4.1% increase from the previous quarter and a 3.3% increase from the same quarter in 2022. Two-thirds of these out-of-metro viewings were in areas with higher homeownership rates, and half were in more affordable areas. With high home prices and remote work becoming the norm, it’s no surprise that homebuyers are venturing beyond their neighborhoods in search of better options.

Mortgage Demand Drops, Rates Ease Up

Despite rates coming down from recent highs, mortgage demand continues to drop. For the fourth consecutive week, demand has declined. The average contract interest rate for 30-year fixed-rate mortgages fell to 6.81% from 6.91%. Applications for home purchases fell by 2% compared to the previous week and were 27% lower than last year. Refinance applications also decreased by 1% and were 42% lower than the same week the previous year. The ongoing lack of inventory and reduced purchasing power from higher rates are contributing to this decline. Let’s hope for a turnaround soon.

Steady Rates Ahead

Mortgage rates have remained relatively stable recently, as there hasn’t been much economic data to sway them in either direction. We’ll be keeping a close eye on next week’s monthly inflation report, as it will likely significantly impact mortgage rates. Stay tuned!