[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]

How will DOGE’s audits of the Federal Reserve and IRS be conducted?

[Brandon]

What types of fraudulent activities are suspected?

• This reply was modified 1 week ago by  Brandon.

[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.