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Real Estate Trends: Why Did Mortgage Rates Suddenly Drop?

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Key Takeaways

  • Rates for 30-year fixed rate mortgages dropped below 7% the first week of November.
  • Rates have been moving higher for most of 2022, rising from around 3% to over 7%.
  • More inflation and economic data needs to be released to know if inflation is finally cooling down or if this is a one-time event.

Mortgage rates have been rising since the start of 2022, thanks to the Federal Reserve raising interest rates to combat inflation. When a recent consumer price index report came in with lower-than-expected inflation, mortgage rates dropped, even though the Fed recently increased rates for the sixth time.

Here is what is happening with mortgage rates and where they might be going in the coming months.

Where mortgage rates stand today

According to Freddie Mac, a 30-year fixed-rate mortgage had an average interest rate of 6.95% for the week ending November 3, 2022. The prior week ending October 27, 2022, saw an average rate for 30-year fixed-rate mortgages of 7.08%.

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15-year fixed-rate mortgages also saw a drop in interest rates to 6.29% for the week ending November 3rd, down from a 6.36% average the week before.

Because mortgage rates are extremely sensitive to economic data, they tend to move quickly. For the week ending November 10, 2022, the average rate on a 30-year fixed-rate mortgage went back up to 7.08%, and the 15-year fixed-rate mortgages rebounded to 6.38%.

Bankrate’s national survey of lenders shows that as of November 16, 2022, the 30-year fixed rate fell to 6.85% and the 15-year fixed rate fell to 6.13%. The previous week, the 30-year fixed rate stood at 7.08% and the 15-year fixed rate was 6.39%.

The trend of higher rates

Mortgage rates started the year in a period of historic lows. The average rate on a 30-year mortgage was 3.22%, and 2.43% on a 15-year mortgage. But the Federal Reserve raised interest rates by 25 basis points in March and by the end of March, the average rate on a 30-year mortgage stood at 4.67%, and the average rate for a 15-year mortgage was 3.83%.

As the Fed continued raising interest rates, mortgage rates climbed higher. They seemingly peaked in late June, with the 30-year hitting 5.81% and the 15-year reaching 4.92%. When inflation data came in lower than expected over the summer, many thought that inflation was finally cooling off and the Fed would ease the pace of raising rates. This sentiment helped to bring mortgage rates down.

In early August, the average rate on a 30-year mortgage was 4.99% and 4.26% for a 15-year mortgage. Things quickly changed with the release of more inflation data showing that inflation was not slowing down. This led to additional rate hikes by the Fed and a steady climb of interest rates to where we stand today.

Why did rates fall?

Mortgage rates are impacted by the federal funds rate, which is the interest rate banks charge each other for lending money. When the Fed increases interest rates, banks’ borrowing costs increase. To offset this rise in costs, they increase the rates on their loan products.

But the fed funds rate is one of many factors influencing mortgage rates. The bond market also plays a role. Most banks do not hold the mortgages they underwrite. They package them into a product called a mortgage-backed security and sell them to investors. Since bond buyers are looking for a competitive return on their money, the interest rate on mortgage-backed securities has to be high enough to attract buyers. The question is, how high?

The most common benchmark lenders peg mortgage rates to is the 10-year Treasury bond yield. Because of this, the interest rate on the mortgage-backed securities has to be higher than the 10-year Treasury yield since there is more risk associated with the mortgage-backed security than with a Treasury bond.

Another critical factor is the housing market. If home prices are so high that buyers decide to rent instead of buy, this lower demand impacts rates. This is because if very few people are buying homes, rates have to drop to encourage buyers to come to the market. The same is valid on the other side as well. If many consumers want to buy, this can drive up mortgage rates.

The supply of homes has an impact too. If there’s inadequate supply, this can cause rates to increase if there is high demand.

Finally, unemployment plays a role. If people have lost their job, they are unlikely to purchase a home. Fear of losing a job is also a factor. With talk of a recession coming, people will not make a large purchase like that of a home if they think they might be out of work soon.

All of these factors blend together to determine where mortgage rates are. No one source determines mortgage rates. Banks consider all of the above data before arriving at a rate they feel is competitive. Since each bank sets its rate, experts advise home buyers to shop around. While one bank might charge you 7%, another might charge you 6.5%. It all depends on the above factors and your credit profile.

This isn’t to say you can shop around in today’s environment and expect to find a bank offering 3%. The rates you are quoted will be in a small range. But this shouldn’t discourage you from finding the lowest rate. Not only will a lower rate make your monthly payment smaller, but you will pay thousands of dollars less in interest over the life of your loan.

Bottom Line

While the sudden drop in mortgage rates was welcome news to home buyers and the housing industry, more information is needed to know if rates will drop again. In the previous months, we saw reports suggesting that inflation was slowing, only for it to rise again the following month.

Once we have additional information indicating that the general trend of high inflation is easing, consumers can expect lower mortgage rates. Until that happens, it is wise to lock in now, as rates could still go higher, depending on future inflation reports. If they were to start falling, home buyers could refinance to take advantage of the lower rates.

As investors, it’s important to track what’s happening in real estate of course, and if you’re tracking real estate closely because you’re looking to buy a house, it’s important to keep your investments liquid so you can make that all-too-daunting down payment when the time comes. Toward that end, Q.ai takes the guesswork out of investing.

Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations. Then, it bundles them up in handy Investment Kits that make investing simple and – dare we say it – fun.

Best of all, you can activate Portfolio Protection at any time to protect your gains and reduce your losses, no matter what industry you invest in while keeping your investments liquid.

Download Q.ai today for access to AI-powered investment strategies.

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Real Estate Trends: Homebuilder Sentiment Drops Along With Housing Prices

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Key Takeaways

  • Home builder sentiment, measured by the National Association of Home Builders, fell in October.
  • The report indicates that home builder sentiment has fallen for 10 consecutive months.
  • The housing market is facing multiple challenges, including relatively high mortgage rates and inflationary pressure on household budgets.

If you’ve been paying attention to the housing market, you’ve likely noticed the relatively bumpy ride it’s had over the last couple of years. After rock-bottom mortgage rates contributed to seemingly endless bidding wars throughout 2020 and 2021, the lightning-hot market has cooled in recent months.

The latest homebuilder sentiment report reflects a slower housing market. Let’s take a closer look at the highlights of changing homebuilder sentiment and falling housing prices.

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Homebuilder Sentiment Drops

The National Association of Home Builders (NAHB) takes the temperature of home builders’ sentiment on a monthly basis. In the latest report, home builder sentiment dropped again. The confidence was reflected at 38 in October, which means it’s at half the level it was 6 months ago.

That represents 10 consecutive months of dropping home builder sentiment. With the exception of the uncertain times of spring 2020, this confidence reading is the lowest it has been since August 2012.

“This will be the first year since 2011 to see a decline for single-family starts,” said Robert Deitz, NAHB Chief Economist in a press release. “Given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”

Housing price trends

As of November, Redfin reported the national median home sale price at $397,549. That’s a 4.9% year-over-year increase. While that might seem like a steep climb, housing price growth has actually slowed down quite a bit.

Home builders aren’t the only ones warning of a potential fall in home prices. Some economists are predicting a sharp fall. The Federal Reserve is warning that home prices might fall, but it doesn’t expect anything like the unforgettable housing market crash that happened during the Great Recession.

Potential reasons for housing market changes

With home builder sentiment dropping like a rock, it’s helpful to understand what factors are at play. There are many factors contributing to a changing housing market. Here’s a closer look at the reasons that stand out.

Hot inflation

In recent months, inflation has been a main feature of the economy.

The Consumer Price Index (CPI), a popular measure of inflation, was sitting at a 7.7% year-over-year increase in the October 2022 report. Although this reflects a gradual decline from the peak earlier in the year, we are still living in highly inflationary times.

But you probably don’t need to look at a special report to know that inflation is present in a big way. You’ve likely noticed inflation as it hits your household budget. Individuals and families across the nation are forced to spend more on basics like food and electricity.

With this pressure on household budgets, it’s difficult for many would-be homeowners to pull together the funds necessary for a down payment on a home. Plus, the increased costs in other areas of their budget might make shelling out for an expensive monthly mortgage payment impossible.

Rising interest rates

In response to sky-high inflation, the Federal Reserve has been aggressively tackling the problem. Although the central bank prefers to have some level of inflation in the economy, the current inflation rate is well above the 2% target.

The Federal Reserve increases the federal funds rate when it wants to tame inflation. Throughout 2022, the Fed has instituted a series of rate hikes. As the federal funds rate increases, so do borrowing costs for homeowners.

Mortgage interest rates hit a 2022 peak of 7.08% for a 30-year fixed-rate mortgage. Since then, mortgage rates have fallen a bit. As of November 18, mortgage interest rates are down to 6.61%. But regardless of this small tumble, mortgage rates are still significantly higher than this time last year when the average interest rate on a 30-year fixed-rate mortgage was 3.10%.

Higher mortgage interest rates lead to higher monthly payments for borrowers. The National Association of Realtors reported that the average monthly payment for a homebuyer in the third quarter of 2022 was $1,840. That’s significantly more than the $1,226 average in the third quarter of 2021.

Higher mortgage costs often mean that buyers can’t afford as high of a sales price. With this factor in play, the possibility of falling housing prices seems to make sense as would-be homebuyers are getting priced out of the market.

How This Impacts Your Investment Portfolio

The housing market isn’t the only sector of the economy impacted by a combination of hot inflation and rising interest rates. As the real estate market shifts around us, you might be interested in adding this exposure to this asset class to your portfolio. But you might not be interested in monitoring the minutiae of the up-and-down housing market trend.

One way to add exposure to real estate trends is by harnessing the power of artificial intelligence through a Q.ai Investment Kit. For example, the Global Trends kit takes real estate into account when making trades that align with your portfolio goals. Consider using this new style of investment technology today.

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Buyers in driver’s seat as sellers ride out real estate rough seas

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I got some blowback last week when I suggested that while quite clearly the housing market is in the throes of a strong correction, life and real estate continues on.

No, I was not shilling for my industry and, by extension, one might assume, my livelihood.

Yes, I still absolutely believe that things are rough and about to get rougher.

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But notable to me is the fact that even amidst all of the scary headlines and all of the well-founded doom and gloom, there are still real estate deals happening in this city. And while as far as I can tell, the who and the how and the why has shifted from the who and the how and the why that drove that wild market that already feels like a distant memory, I’m not sure what we’re seeing should be written-off as anecdotal outliers.

Transaction volume is down by half compared to this time last year. Interest rates currently stand at levels inconceivable less than a year ago. New homeowners are stressed, would-be home buyers are spooked, and everyone else is trying to figure out how worried they need to be.

 

But here’s what I am observing in real time: buyers are absolutely still out there.

Our transaction volume may be down by half, but the remaining half of what was truly record-levels is not inconsequential. It maybe just feels that way.

Case in point: I listed an adorable house in a central Toronto neighbourhood last week. The perfect starter home for first-time buyers. It would have been an absolute bun fight last winter.

I wasn’t sure how it would go. And because of that, I left nothing to chance. We shined her up, I spent a small fortune on staging, the photos were perfect. We did all the things.

I also spent a lot of time managing expectations. All we need is one buyer, I explained to my clients — just one.

Never would I have guessed that we would end up with twenty-five groups braving the miserable cold to come to the open house. And these weren’t people just out killing time on a Sunday. These were buyers, with parents in tow, and home inspection reports in hand, armed with their questions and their critical eye. The same buyers that are supposedly priced out or debilitated by the fear of catching falling knives.

Offer night yielded four offers. But unlike the offer nights of days prior, these prospective buyers weren’t armed with letters to the sellers and waving their bank drafts around. They were cool. They had conditions. And their numbers were conservative. Even in competition.

The house sold for less than I expected, but with the four offers the market was clearly speaking and my clients were willing to listen.

And this experience tracks with what I am hearing from my colleagues: the buyers still out there will participate at the right price. They will come forward when they’re good and ready. There is no FOMO. They will offer on things, sure, but will walk if it’s not right for them.

And this will be how the prices continue to grind downwards.

So while yes, the market has slowed right down, I wonder if the stasis is also due to the logjam of sellers determined to wait out these unfavourable conditions.

I suspect that once reluctant acceptance of new-new normal settles in, we will see inventory rise and sales volume increase. But I feel pretty confident in saying that it will be quite a long time before sellers leave the table feeling like heroes again.

@brynnlackie

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Everything you should know about the metaverse real estate

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Everything you should know about the metaverse real estateEverything you should know about the metaverse real estate

With an expected CAGR of 31.2% from 2022 to 2028, the metaverse is one of the most rapidly growing economies globally. Developing a virtual world through the metaverse offers infinite possibilities for creating better spatial experiences. Its immersive and engaging virtual environment makes digital interactions feel real. This quality has grabbed the attention of leading tech companies who are now vouching for metaverse as the future of the built environment. Thus, investors and developers are looking at the metaverse as a potential investment for enhancing user experience and the saleability of a place.

What is Metaverse Real Estate?

Everything you should know about the metaverse real estateEverything you should know about the metaverse real estate
© The Benoit Properties Magazine

Real estate in the metaverse refers to land parcels and buildings in the virtual environment. The land in the metaverse is virtual, implying that it has no physical attributes. Land parcels in the metaverse are essentially pixels that act as programmable spaces in virtual reality platforms. These lands can be used to develop workplaces, playgrounds, and meeting rooms.

Investors can buy land plots from multiple metaverse platforms providing unique virtual environments. Each of these platforms provides various functions; hence, no one platform represents the metaverse in totality. The Sandbox, Decentraland, Metahero, Horizon Worlds, and Celebrity Atlas are some of the most popular metaverse platforms for real estate developers to invest in.

Why and How to Purchase Real Estate in Metaverse?

Everything you should know about the metaverse real estateEverything you should know about the metaverse real estate
© ED Times

Metaverse real estate provides people with a place to connect with people located in distant locations across the globe. Developers can monetize their virtual properties to advertise services, host events, and provide unique visitor experiences. Similar to physical land, real estate properties can also be rented or leased. Hence, investing in metaverse real estate can be profitable for key players in the AEC industry.

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In 2017, during Decentraland’s first LAND auction at the Terraform Event, a plot of land was sold at an average of $20. In 2021, the same parcels of land were sold for an average above $6,000. Further, the beginning of 2022 witnessed a boom in the metaverse real estate prices, with property costs rising to $15,000.

Everything you should know about the metaverse real estateEverything you should know about the metaverse real estate
© beincrypto

For land purchases in the metaverse, the investor must require a virtual wallet to make all transactions. MetaMask is one of the most trusted browser-based wallets for making digital transactions. The digital wallet will have to be filled with cryptocurrency since it is the virtual world’s currency. Investors can study the features of various metaverse platforms and compare them against each other before registering.

Following this, the investor can create a digital avatar of themselves and take a tutorial on the platform to get acquainted with its virtual environment. After this, the plot selection and buying process can begin. Purchasing a metaverse property involves a deed of ownership, a unique code on a blockchain. This code certifies the ownership rights over a piece of virtual land. The purchased plot can be used to develop a new building or a digital twin of physical space.

Benefits of Investing in Metaverse Real Estate

Everything you should know about the metaverse real estateEverything you should know about the metaverse real estate
© Courtesy of Decentraland

The key benefit of metaverse real estate is that it compensates for the lack of space in the physical world. For instance, employers can create conference rooms and event halls in the metaverse if an office lacks physical meeting spaces. Further, the metaverse provides a seamless collaboration experience that allows people living in different parts of the world to communicate with each other.

Project marketing and property showcase is other significant benefit of the metaverse in the real estate sector. Developers are creating immersive metaverse experiences for potential buyers to witness their “dream house” in virtual reality. Equipped with VR headsets and compatible smartphones, buyers can take virtual reality tours of various places worldwide.

Many countries such as Germany, Croatia, Hungary, Norway, Mauritius, Iceland, Spain Costa Rica have invested in virtual tourism with the aid of the metaverse. Tourists can look at the most popular public buildings, experience their charm, and indulge in regional activities by weaving VR headsets.

Risks Associated with Metaverse Real Estate

Everything you should know about the metaverse real estateEverything you should know about the metaverse real estate
© Liberland

Investing in the metaverse is promising, but it can also pose high risk owing to its relative newness. Although researchers predict that the metaverse has an excellent scope for growth, it is very early to predict how the industry will grow. For instance, if a metaverse platform decides to go offline permanently, the real estate in them would also become non-existent. In this case, the value of investment made by real estate developers would be questionable.

The valuation of physical land gets appreciated or depreciated based on market conditions, environment, and other tangible factors. But, all these factors have no impact on metaverse real estate since the virtual environment can be controlled. So, the only and most important variable that impacts the value of the real estate in the metaverse is the volatility of cryptocurrencies.

Developing and Managing Real Estate in the Metaverse

© Getty Images/iStockphoto

In the metaverse, developers can assign property development roles to architects. In the case of neighborhood developers, urban planners and urban designers can be involved. Architects can design the virtual world by planning the land parcels to maximize space utilization. Further, the land in the metaverse needs management similar to physical property management. The virtual world can potentially grow real estate through effective virtual property management, rental assortment, dealing with client queries, and general land maintenance.

In Conclusion

© Athitat Shinagowin/Shutterstock

Investing in metaverse real estate is associated with high risks and equally high rewards. The uncertainties of the virtual world can exponentially multiply to reap enormous benefits or deteriorate into a complete loss of investments. So, before investing, the developer must ensure that they have complete knowledge and understanding of how the metaverse works.

Investors must identify their risk appetite, weigh all their investment options, and speak to experts before investing. Considering all these factors, the fact that the metaverse will define the future of living is undeniable. Therefore, all key players in the AEC industry should prepare themselves for the dawn of this next-generation technology that is empowering, immersive, and engaging.

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