The Federal Reserve Raised The Federal Funds Interest Rate By 0.50% , The Second Time in 2022

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The Federal Reserve raised the federal funds interest rate by 0.50% This Week in Real Estate – the second time in 2022 and the largest increase since 2000 – in an effort to fight surging inflation. In anticipation of the widely expected increase the volume of purchase mortgage applications were 4 percent higher than the prior week, ending a seven-week slide. Conventional, FHA and VA purchase loan applications all realized increases. The Mortgage Bankers Association chief economist, Mike Fratantoni, believes Wednesday’s increase “alone is unlikely to spark a new surge in mortgage interest rates.” Below are a few newsworthy events from the first week of May that influence our business: 

Spring and Summer Home Sales Yield Best Days of the Year to Sell a Home. ATTOM released its annual analysis of the best days of the year to sell a home on Thursday, which shows that based on home sales over the past 11 years, the months of May, June and July offer seller premiums of 10 percent or more above market value – with the top 15 best days to sell in the month of May alone. “Homeowners looking to maximize the price premium they can claim on their homes should sell their properties in May, June, and July when buying activity is at its peak,” said Rick Sharga, executive Vice President of market intelligence at ATTOM. The months realizing the greatest seller premiums were as follows: May (12.6 percent); June (10.7 percent); July (10 percent); April (9.2 percent); March (8.9 percent); September (7.9 percent); February (7.9 percent); August (7.9 percent); December (6.3 percent); January (6.2 percent); November (6.1 percent); and October (5.2 percent). 

Federal Reserve Approves Interest Rate Hike of Half a Percentage Point. What Does That Mean For Mortgage Rates? The Federal Reserve Wednesday approved a 50 basis point increase to its policy interest rate in an effort to reduce inflation, in conjunction with a plan to shrink its $9 trillion asset portfolio beginning next month, according to Chairman Jerome Powell. Wednesday’s “vote alone is unlikely to spark a new surge in mortgage rates,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association. Fratantoni said MBA expects mortgage rates will plateau near current levels. “Once we are past this rate spike and associated volatility, MBA expects that potential homebuyers may be more willing to re-enter the market. Given how much higher rates will remain above the past two years, we do not expect refinance demand to increase any time soon.” 

Purchase Applications Rise on Threshold of Fed Meeting. The volume of mortgage application submitted during the week ended April 29 ended a seven-week slide. The Mortgage Bankers Association (MBA) said purchase applications were substantially higher than the prior week while refinance applications held their own. Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting commented that, “Treasury yields eased slightly last week but remained close to 2018 highs, as financial markets await the news from the Federal Reserve on its latest plans for rate hikes and reducing its balance sheet holdings. The 30-year fixed rate was 5.36 percent, up over two percentage points from a year ago. The 127-basis point jump in rates over the past two months has triggered a 49 percent drop in refinance activity.” “The purchase market remains challenged by low levels of housing inventory and rapid home-price gains, as well as the affordability hit from higher mortgage rates that are forcing prospective buyers to factor in higher monthly payments.” But, Kan concluded, “Purchase applications increased for conventional, FHA, and VA loans and were up 4 percent overall. This is potentially a good sign for the spring home buying season, which has seen a slow start thus far.”

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