Fannie Mae: Mortgage rates are expected to fall below 6% this year

👋 Good morning and welcome back to Mortgage Nuggets. Today’s newsletter is 793 words, a 3.5-minute read. Let’s dive in.

1. Builder sentiment surges on falling interest rates

Homebuilder sentiment improved in January, jumping 7 points to 44 on the National Association of Home Builders monthly index. Anything below 50 is still considered negative, but the index has now moved 10 points higher in the last two months.

Sentiment is now at the highest level since September.

The increase coincides with a big drop in mortgage interest rates from around 8% in mid-October to the 6% range in December. Builders point squarely to that, and the effect on affordability, for growing confidence.

2. HUD secretary open to changing FHA ‘life of loan’ requirement

At a recent congressional committee meeting, HUD Secretary Marcia Fudge expressed openness to reconsidering the life-of-loan premium requirements for FHA-backed mortgages.

The issue, raised by Rep. Brad Sherman, focused on reducing the financial burden of mortgage insurance premiums for working-class individuals, people of color, and first-time homebuyers.

Sherman proposed eliminating these premiums when homeowners achieve a certain loan-to-value ratio. HUD Secretary Marcia Fudge responded affirmatively “I would love to see it happen”.

Later, Rep. Gregory Meeks queried whether FHA mortgage insurance premiums could mirror the private market model, decreasing as homeowners gain equity. Fudge showed enthusiasm for this idea, indicating a potential policy shift at HUD.

3. Charted: Housing market affordability

Payment-to-income ratios in the nation’s 10 most affordable metros and the 10 least affordable, according to Black Knight.

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4. Catch up quick

💳 Americans are actually pretty happy with their finances. (Axios)

🏡 New housing construction dipped in December, permits rose. (Bloomberg)

🫂 Empty nesters own twice as many ‘large homes’ as millennials with kids. (Redfin)

✂️ CFPB proposal would cut overdraft fees as low as $3. (Banking Dive)

5. Court says $200B commission suit against NAR must go forward

Judge Stephen R. Bough of the U.S. District Court for the Western District of Missouri has rejected a motion to pause/stay the $200 billion lawsuit against the National Association of Realtors (NAR) and other real estate firms.

This decision allows the Gibson lawsuit to proceed, challenging NAR's cooperative compensation rule. The rule is alleged to inflate real estate commissions nationwide.

This ruling follows a $1.78 billion verdict in the related Sitzer | Burnett case, where NAR was found to have conspired to increase commission rates.

6. Mortgage rates drop to lowest level since May

Mortgage rates this week fell after two weeks of increases, dropping to the lowest level in almost eight months. The average for a 30-year, fixed loan was 6.6%, the lowest since May and a decrease from last week's 6.66%, Freddie Mac said in a statement Thursday.

The reversal offers some reassurance for would-be buyers looking for a way into a deal as the housing market gets ready to enter its busiest season. But shoppers are likely to encounter high prices and bidding wars, thanks to a persistent shortage of listings across the country.

That pressure should ease if rates fall significantly enough to give a critical mass of current homeowners — most of them holding onto sub-4% mortgages — an incentive to sell and find a new place.

7. Fannie Mae: Mortgage rates are expected to fall below 6% this year

Fannie Mae's Economic and Strategic Research Group forecasts a decrease in mortgage rates to below 6% by end-2024, spurring an increase in mortgage originations.

Single-family purchase volumes are expected to grow 19% to $1.5 trillion, up from $1.3 trillion in 2023. Despite lower rates, a significant refinance wave is unlikely as most existing Fannie Mae loans are already under 6%.

Nevertheless, there is an expected continued interest in cash-out refinancing, particularly due to the increased homeowner equity accrued from recent home price gains. The group projects that single-family refinance volumes will reach $490 billion in 2024, a significant rise from $246 billion in 2023, but still 33% below the refinance originations of 2022.

POLL RESULTS

Last week, we asked you what motivates you most at work.

Unsurprisingly, the most common answer was cold, hard cash at 48%.

🙏 You're all caught up. See you on Monday!

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