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Bill proposes kicking institutional investors out of the U.S. housing market

Plus: Mortgage rates drop for sixth straight week

December 08, 2023

👋 Good morning. On toward the weekend! Today’s newsletter is a 3-minute read.

Disclaimer: Average mortgage rates as of Dec 07, 2023. © MND's Daily Rate Index.

1. Bill proposes kicking institutional investors out of the U.S. housing market

On Tuesday, Senator Jeff Merkley (D-Oregon) and Representative Adam Smith (D-WA-09) introduced the "End Hedge Fund Control of American Homes Act" in both chambers of Congress, seeking to push institutional investors out of the housing market.

The bill not only seeks to ban institutional investors from holding large single-family home portfolios but also to force them to sell off homes they currently own to families at a rate of at least 10% per year for 10 years. After a 10-year full phase-out, they would be completely banned from owning any single-family homes.

“The housing in our neighborhoods should be homes for people, not profit centers for Wall Street. Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices,” wrote Senator Merkley in the press release. “It’s time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford.”

2. Mortgage rates drop for sixth straight week

The 30-year fixed-rate mortgage decreased for the sixth straight week, from last week’s average of 7.22% to an average of 7.03% this week, according to the latest Primary Mortgage Market Survey® (PMMS®) from Freddie Mac.

This week’s numbers:

  • 30-year fixed-rate mortgage averaged 7.03%, down from last week when it averaged 7.22%. A year ago at this time, the 30-year FRM averaged 6.33%.

  • 15-year fixed-rate mortgage averaged 6.29%, down from last week when it averaged 6.56%. A year ago at this time, the 15-year FRM averaged 5.67%.

“The 30-year fixed-rate mortgage averaged near 7% this week, down from nearly 7.80% just six weeks ago,” said Sam Khater, Freddie Mac’s Chief Economist. “When rates began to rapidly drop, purchase applications rebounded initially, but this improvement in demand diminished in the last week. Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand.”

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3. Catch up quick

🏡 2023 was the least affordable homebuying year in at least 11 years. (CNBC)

🧑‍⚖️ Copycat antitrust lawsuits spread to Florida, Pennsylvania. (TheRealDeal)

🏦 CHLA advocates attorney opinion letters as alternatives to title insurance. (LINK)

4. Mortgage applications continue to rise

Mortgage applications saw a notable increase of 2.8% from one week earlier, according to data from the MBA Weekly Mortgage Applications Survey for the week ending Dec. 1, 2023. Last week’s results include an adjustment for the observance of the Thanksgiving holiday.

  • The seasonally adjusted Purchase Index decreased by 0.3 percent from one week earlier. The unadjusted Purchase Index increased by 35 percent compared with the previous week.

  • Refinance applications posted their strongest week in two months. The refinance index rose by 14% week-over-week and was 10% higher than a year ago.

  • The refinance share of mortgage activity increased to 34.7 percent of total applications from 30.6 percent the previous week.

The share of FHA loan activity increased to 15%, up from 13.5% the week prior. The share of VA loan activity was 12.8%, up from 12.6% over the previous week, while the share of USDA loan activity remained unchanged at 0.5%.

5. Charted: The ‘golden handcuffs’

Back in the late 1970s, the term “golden handcuffs” was popularized to explain why ambitious professionals stayed at big companies like General Electric and Procter & Gamble, instead of trying new jobs or starting their own businesses. They stayed because the companies paid them a lot of money and gave them great benefits, making it hard to leave.

Now, we can use "golden handcuffs" to talk about the U.S. housing market. During the pandemic, people could get mortgages with very low interest rates, like 2% or 3%. These low rates are like golden handcuffs because many homeowners don't want to move.

The reason is that if they were to sell their homes and buy something new, they would be exchanging their ultra-low 2% and 3% mortgage rates for something in the 7% to 9% range. This potential big jump in payments would be simply too steep for many would-be sellers/buyers to handle.

6. One fun thing: A real-world puzzle

Pictured above are Jax and Jett. They are not brothers. They were born four months apart to different mothers and different fathers. Curiously, any genetic test conducted on Jax and Jett would say they are brothers. How can this be?

The answer is at the very end of the newsletter.

👋 See you on Friday!

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