Jerome Powell nominated to continue role as Fed Chair

On Monday November 22, 2021 Jerome Powell was nominated to continue his role as the Chair of the Federal Reserve. This move means the bond market is now laser focused on the tapering plan. On the surface this is most likely the best bet they could make given the fact that the tapering plan has already been laid out, publicly acknowledged, and includes an estimated beginning date and a target end date (mid-2022). All things considered, Jerome Powell remaining in place as likely the “surest” of options for the current administration to go with. Further, a change amidst uncertain economic times could have riled markets unnecessarily while trying to digest historic monetary policy, stock market highs, interest rate lows, household debt records, rising inflation, employment pressures, etc…

Thus, knowing Jerome Powell will be our Fed Chair should mean we know some things that can help us ascertain the landscape ahead for the real estate and mortgage markets. For starters we should expect the Fed’s plan to begin tapering their bond purchasing as scheduled (late-November 2021). This will reduce their treasury purchases by $10 billion a month and mortgage backed security purchases by $5 billion a month until the program concludes. This is expected to continue to mid-2022. With mounting pressures over the topic of inflation there is growing speculation that this tapering process may be done with a more expedited pace than initially announced. The effect of this would mean the full burden of mortgage rates will be handed off to the open market sooner than anticipated, which could cause interest rates to rise sooner and/or faster than expected. If this is to occur, we can expect to see a slowing down of home prices earlier in the 2022 calendar year than projected. The Case-Shiller home price index recently predicted that home price appreciation for 2022 would be 1.8% in 2022, and that’s considering all 12 months of data over the coming year. That may be under direct threat if the cost of borrowing steeply increases in the first 90 days of 2022. We will be watching the tapering frequency and purchasing amounts very closely in the weeks ahead as it will most likely set the tone for the speed of wrapping up that program in 2022.

What does this mean for aspiring homeowners looking to buy a home?

Borrowers hoping to break into the housing market may find themselves in a good spot when it comes to home prices provided that the interest rate environment is steady without becoming unaffordable. Monthly payments are calculated based on loan balance, interest rate, and term, which are all subject to swift changes in uncertain times. Coupled with home price appreciation slowing, it should allow aspiring homeowners a healthy window to find the right home without becoming priced out of the market. Our recommendation is to become pre-approved before you house hunt so you are shopping within the range you can legitimately go to escrow with. Further, if we are to see increased rates toward the middle or end of 2022, waiting could cost you precious dollars monthly, and it could even decrease your purchasing power. In the example below you see that a 0.5% increase in interest rate could decrease your loan by $50,000 ** and even more if rates were to go higher.

**Example:
$500,000 @ 3.0% over 30 years = $2,108/month
$450,000 @ 3.5% over 30 years = $2,120/month

What does this mean for homeowners who need to refinance?

If you are looking to refinance your house, you will want to take action sooner rather than later. Although the low lows of 2021 are clearly in the rear-view mirror, savings can still be had by those positioned and prepared to refinance. You may also want to consider a refinance where you select a shorter term loan rather than a new 30 year term. Last week we wrote about the advantages of selecting a 20 year loan while the interest rate environment is low and home equity is at all-time highs. You may be able to chop off years of interest payments and save thousands of dollars of interest.

For those of you wishing to take some cash our of your home equity, the cash out refinance is still a viable method of accessing gains in your property value to pay off debt, save for a rainy day, make upgrades, or remodel. With home equity generating a lot of “headroom” between the loan balance and the market value, it would be more opportune to do a cash out refinance today, than wait for the Fed’s tapering schedule to negatively effect your window for refinancing. In short, it’s quite possible that the longer you wait to do a cash out refinance, the greater risk interest rates will be higher, thus making your monthly payment higher simply for delaying the decision. As with the example before for buyers, refinancing now vs. when rates have increased makes a big difference in your monthly payment.**

**Example:
$500,000 @ 3.0% over 30 years = $2,108/month
$500,000 @ 3.5% over 30 years = $2,245/month (+$137 a month, every month)

So no matter where you find yourself in this unique moment in real estate and mortgage, we are committed to help you understand what your best choices are so you and your family can enjoy homeownership to it’s fullest. The weeks and months ahead will certainly clarify a lot of speculation in the markets right now. Whether you are looking for a VA, FHA, or Conventional mortgage, we are confident that you will have success with your local mortgage expert here at Mortgage Heroes.

If you would like to speak with our team about your home loan questions, please complete the form below. You can also start your loan application online by APPLYING NOW.

Rates & Fees Disclosure:
^‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.

^‡ Based on Mortgage Heroes internal data.