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We are awaiting the Fed Board’s decision on interest rates Wednesday afternoon, when they are expected to pause, albeit with a hawkish tone, signaling they may not be done with rate hikes this year, and in fact lean toward keeping rates higher for longer to quell lingering inflation, before deciding to go lower late in the year.
As we’ve discussed here, the backdrop has been an economic dichotomy — a strong first quarter, followed with what appears to be even stronger second quarter amidst signals (credit tightening, profit margins tightening, consumers tightening, hiring slowing notwithstanding the strong May) the economy will slow later this year. We may not have seen the last of the bank failures either — while the Fed’s lending facility has calmed the outflow of deposits from smaller and regional banks, the longer these rates stay higher, the more pressure we will see.
Adding to those signals was a report from Attom indicating increased foreclosure activity in May, resuming what it said is “a slow climb back toward levels seen prior to the pandemic.” Meanwhile, Redfin reported 33.4% of home purchases in April were all-cash, reflecting tight supply and reduced affordability for mortgage borrowers, almost the highest share in nine years and up from 30.7% in April 2022. Median down payments were down in April, with the typical down payment of $52,500, down 18% year-over-year, the second-biggest drop since May 2020. Down payments have been falling year-over-year since November.
Redfin said FHA loans “were up as a percentage of purchases, at about 16.4% in April. That’s a notable increase from 10.4% a year earlier. They’ve become more common as high mortgage rates have cooled the market–FHA loans were losing out to buyers with all-cash or conventional loans during the stretch of highest competition.”
The Mortgage Bankers Association reported that mortgage credit availability declined in May, the third consecutive month and the lowest reading since January 2013 “as the industry continued to see more consolidation and reduced capacity as a result of the tougher market.”