[Brandon]

The Department of Government Efficiency (DOGE) aims to improve government efficiency and effectiveness. This is a rough sketch of the primary issues that the department would deal with.

ObjectivesStreamlining Services:

DOGE focuses on eliminating duplication and improving service provision from different government departments.

Cost Reduction:

• Recognizing opportunities where government expenditure can be reduced without degrading the level of service given.

Enhancing Transparency:

Increasing the openness of government activities to foster public confidence and accountability.

Functions

Audits and Evaluations:

• Carrying out routine audits and evaluations of government activities to determine their effectiveness and efficiency.

Policy Recommendations:

• Making recommendations that would result in improved operational practices and reduced expenditure.

Training and Support:

• Conducting training workshops on management, budgeting, and service delivery for government personnel.

Impact on Housing and Urban Development

Housing Programs:

• Measuring the effectiveness of housing assistance programs and reforming them to meet the needs of low and middle-income families.

Resource Allocation:

• Ensuring that the budgetary resources for housing programs are provided where they will best serve the community’s needs.

Collaboration with Other Agencies:

• Engaging with the Department of Housing and Urban Development (HUD) to establish common objectives and plans to meet affordable housing needs.

Challenges

Resistance to Change:

• Implementing efficiency measures may encounter opposition from government agencies or groups worried about losing jobs or resources.

Balancing Efficiency and Access:

• When working towards greater efficiency, care must be taken that access to services, particularly for disadvantaged groups, is not restricted.

In addition, DOGE is instrumental in improving efficiency and effectiveness at government levels, which will greatly benefit many sectors, including housing. The department offers training on conducting audits and formulates policy recommendations that, when implemented, will enhance service delivery to the citizens.

[Brandon]

GCA FORUMS HOUSING AND MORTGAGE NEWS

Tuesday, February 18, 2025

Government and political changes have occurred alongside the mortgage and housing markets as the economy shifts. My update today explains how proposed government reforms are currently influencing the development of our market, the concerning effects created by the Department of Government Efficiency’s meddling within the real estate domain, and various other crucial market indicators.

Market Overview Mortgage Rates and Treasury Yields:

• For the last couple of months, mortgage rates have fluctuated rather unpredictably.
• Due to fiscal spending policies changing for the worse and constant uncertainty from investors, the average rate for a 30-year fixed mortgage has been uptick, currently staying at approximately 6.5%.
• Inflation and changes in sentiment have led to an increase in the 10-year treasury note value, which now sits at 4.3%.
• As investors grow more cautious, these pointers will be extremely destructive for the economy, drastically shaping long-term home financing conditions and the cost of borrowing.

Precious Metals – Gold & Silver

The economic transitions and geopolitical uncertainties have caused a commendable transformation in the prices of gold and silver over the years. As the primary haven asset, gold remains priced near $2,950.20 per ounce, while silver sits at roughly $33.38 an ounce.

Housing Prices, Inventory, and Demand

The housing market is still volatile because of higher demand but lower inventory. While home prices have appreciated in most markets, the median price increased 4 to 6 percent compared to last year. Suburban and rural areas have been experiencing high demand, which is further amplified by constricted supply. Though some urban centers appear to be cooling off, strong demand in outlying areas continues to be a trend. Even with increasing mortgage rates, buyer activity and the lack of inventory drive up prices.

The Influence of Government Policy And Regulatory Proposals

Eliminating Important Financial Institutions

• Some political movements come to mind, like those aimed at eliminating the Federal Reserve Board, the IRS, and the CFPB.
• To gain support, advocates suggest that this would reduce bureaucratic overreach and enhance economic participation.
• However, the prevailing financial market sentiment remains highly cautious.
• This is because of the uncertainty brought about by these changes.

Mortgage Rates:

• The possibility of unwinding the Federal Reserve and other regulatory entities contributes to elevated mortgage loan risk premiums and the subsequent market panic.

Investor Sentiment:

• The changes have increased the risk level of mortgage lending, and banks and investors are tracking these developments closely.
• This has also resulted in the deterioration of lending standards and increased the cost of borrowing.

Department Office of Government Efficiency (DGE) Audits

The DOGE separate audit of USAID has extended to a wider range of government activity. While there is no formal notice to the public for any other agencies being added to the list, there are rumors among political circles that the DOGE is looking into various departments’ spending and operational waste for further investigation.

Market Impact:

• Those changes have shifted the government’s balance of power and responsibility, resulting in increased debates about accountability and government spending.
• There has been a subtle decline in investor confidence in mortgage and housing markets.
• Some increase in consumer confidence created a zone of uncertainty, which, in turn, influenced real estate investments.

Political and Enforcement Dynamics

Consequences of Uncertainty Within Regulation:

• With the planned political reforms, particularly the proposed elimination of relevant agencies, DOGE investigations have also shifted the time horizon for most regulatory issues.
• This new environment has been adverse not just to financial markets.
• Still, it has also changed the attitude of lenders and investors to be more cautious.

Lending Standards:

Some lenders have responded to heightened uncertainty by restricting their lending criteria, leading to tougher credit evaluations and more stringent documentation demands.

Market Volatility:

• The housing sector is expected to have long-term positive outcomes.
• However, in the short term, there is bound to be some volatility as market players adjust to changes in policies and strategies.
• As of February 18, 2025, the national mortgage and housing environment is in limbo.
• Mortgage rates continue to rise, treasury yields are volatile and high, and demand is strong.
• However, supply is tight for now.
• On the other hand, bold proposals to abolish large-scale financial institutions have created uncertainty, which has caused lenders and investors to adopt a wait-and-see approach.
• Furthermore, broadening the scrutiny by the Department Office of Government Efficiency adds to the scrutiny, which could change the perception and management of government spending.

To thrive as a homebuyer or a professional in this field, staying on top of the news and being flexible enough to adapt to changes is crucial. GCA FORUMS is dedicated to ensuring you have the information you need well in advance to take advantage of emerging opportunities and tackle any challenges.

While we monitor changes in the country’s housing and mortgage market, we will continue to provide updates and analyses regarding these shifts in trends.

[Brandon]

Could you elaborate on the “Data Collection” phase?

[Brandon]

How long would an audit of this scale typically take?

[Brandon]

How large would such an audit team typically be?

[Brandon]

What specific expertise will the audit team possess?

[Brandon]

The way housing costs and mortgage rates shift qualitatively affects every income bracket:

Low-Income Households

Affordability Challenge:

• Low-income households are almost always exposed to increased housing costs and have less disposable income.
• Higher mortgage rates can make homeownership harder to obtain.

Dependence on Rental Markets:

• Low-income families may rely on renting houses to meet their living standards, which may also raise costs due to limited supply and increased demand.

Low Credit Access:

• These individuals are low-income for a reason, and as such, they have restricted access to loans, making it more difficult for them to obtain affordable financing.

Middle-Income Households

Strain on Budgets:

• As mortgage rates go up, so do monthly payments, something middle-income families are likely unprepared for and not fully prepared to meet those payments.
• Because of that, they might need to rethink their plans for purchasing a house.

Reach a Compromise: For middle-class families to purchase homes, they may need to lower their standards in terms of the home’s location, size, and even general housing conditions to afford it.

Extended Saving Period:

• These income brackets may be forced to wait longer before purchasing a house due to the need to save for greater down payments because of high monthly payments.

High-Income Households

Less Impacted by Rate Increases:

• The higher-income demographic usually has more financial breathing room.
• As such, it is often not as impacted by increasing mortgage rates as other people might be.
• They could still purchase homes regardless of the increased costs.

Investment Opportunities:

• A few high-income earners might see the increased rates as a good chance to purchase real estate, particularly if they can buy properties as prices go down when demand falls.

Cash Buyers:

• High-income individuals can also afford to buy homes with cash, which alleviates them from being affected by increasing mortgage rates.

First-Time Homebuyers

Difficult Entry:

• New entrants into the housing market often belong to low to medium-income individuals and have to deal with some difficulties.
• With increasing mortgage rates, it becomes extremely hard for them to save down payments and monthly covenants within their means.

Dependence on Programs

Many first-time buyers rely on subsidy programs or cheaper loans, which may become difficult to obtain as market conditions evolve.

Increasing mortgage rates harm low- and middle-class families the most since they limit homeownership and force greater dependence on rental markets. While high-income families may cope with these changes relatively well, first-time home buyers have specific challenges to overcome regardless of their earnings. The different effects showcase the need for customized policy intervention to aid those suffering the most from changes in the housing market.

[Brandon]

It is no secret that rising mortgage rates make housing affordability a tick more challenging.

Here’s how it all breaks down:

Increased Monthly Payments

One of the main ways mortgage rates affect housing affordability is through increased monthly payments. Why does this happen? As mortgage rates increase, the cost of borrowing money also increases. This translates to a family paying more interest throughout the loan, increasing monthly payments.

Consider this example:

• A 1% interest rate increase can translate to an additional $200 payable on a $300,000 mortgage.
• These factors drastically affect whether potential buyers can even afford a house.

Reduced Purchasing Power

• Purchasing a house becomes harder for families, reducing their purchasing power.
• This increases the maximum loan amount a borrower can qualify for based on income.
• Due to the options provided in the housing market, it is no surprise that a loan with a reduced amount yields as the rate increases.
• The softened demand results in sluggish supply growth, directly impacting the economy’s prices and growth.

Increased Down Payment Requirements

• The increased cost translates to increased affordability constraints.
• With a higher monthly payment, buyers need to factor in how much they are willing to pay while still being able to sustain the cost of living.
• Unknown factors can make this an unreachable goal for many buyers looking to enter the market.

Change in Buyer Behavior

Market Dynamics:

• Buyers might change their behavior due to increased rates by switching to adjustable-rate mortgages (ARMs) or postponing purchases until rates drop.

Effect on Buyers:

• First-time home buyers tend to be more price-sensitive, making it more challenging to enter the market, which worsens the affordability crisis.

Economic Implications

Consumer Confidence:

• A negative correlation exists between increasing mortgage rates and consumer confidence within the housing market.
• People become reluctant to spend because it is likely rates will rise.

Effect on Sellers:

• Homeowners may be unwilling to sell and move up because their current mortgages have lower rates, reducing housing availability.

Many buyers will find homes increasingly unaffordable due to higher monthly payments, less purchasing power, and more down payment requirements from rising mortgage rates.

This could lead to changes in the housing market that would affect the behavior of both buyers and sellers.

[Brandon]

Experts predict that median sales prices will reach around 429,000 by early 2025, which is an increase of 4.1% year over year.

Market Dynamics

While home prices will continue to rise, the rate at which they increase will be slower, with experts forecasting overall growth to be 2% for 2025.

Due to lower inventory, the housing market remains competitive, propelling prices even higher, even with the increased rates of mortgages.

Inventory and Demand

Many homes priced for sale still have not reached the stage required to balance the market, leading to rising prices. By late 2024, the U.S. had a 3.8-month supply of housing inventory, which is lower than the 5-6 month period needed to balance the prices.

Stronger demand is seen for newly constructed homes as buyers move away from the limited available old home inventory.

In summary, the rate at which home prices are increasing is slowing down. Homebuyers face challenges caused by elevated prices and a lack of housing supply. However, as supply levels slowly increase, the market could stabilize shortly.