Patric Kelly - The Realty Society

01/19/2025

Yummy

06/11/2023

Mike Gallagher’s take on interest rates this week.

Happy Saturday! Updated Rate Sheet attached. From time to time Zillow produces interesting reports, and their data is pretty much deemed reliable among economists.



Zillow reported this week, on a national level, there were 23% fewer listings than there were this time last year, and almost 50% less listings than there were May of 2019. This marks the fewest active listings in any May on record!



Zillow’s Home Value Index also reported a 1.4% increase in home values between April and May, which is the strongest monthly growth we’ve seen in 12 months. While the Midwest led the nation with the largest gains, the report shows a rebound in West Coast markets as well, including Seattle, San Francisco, and San Jose.



But it’s not just lack of resale inventory creating pricing pressure, it’s the first-time homebuyers. There is a huge wave of first-time homebuyers entering the market. What makes this group of buyers so unique is that they don’t have a house to vacate, so they really put pressure on the supply/demand imbalance.



In most markets new construction is not keeping pace with the number of first-time home buyers, so this supply/demand imbalance will likely continue for years. It is why most economists are predicting home price appreciation for the next several years.



According to MBS Highway, the population of 27-35 year olds in Santa Clara county is estimated at 31,000 (the age group of typical first-time homebuyer). And yet there are less than 5,000 residential units planned based on building permit records. It is why MBS Highway is forecasting 34% cumulative appreciation over the next 5 years.



And once mortgage rates start to fall, and they will, more buyers will start jumping in the game, fueling appreciation further..



This week should be fun, with CPI number out Tuesday and the Fed meeting Wednesday…stay tuned..



Have a great weekend! If I can help with any client preapproval, call/text me, 408-930-6064.

Mike

05/07/2023

Mike Gallagher's weekly report on the interest rate situation:

Happy Saturday! This week the Federal Reserve hiked the Fed Funds Rate by another .25%. This really didn’t come as any surprise, the Fed telegraphed this hike since the last meeting, despite the banking system desperately needing a break. While the Fed is focused on inflation, these hikes are having unintended consequences affecting the banking system.

When the Fed hikes short term rates it immediately devalues the bonds sitting on a bank’s balance sheet, most of which are at much lower yields. This really doesn’t become a problem until depositors get nervous and begin withdrawing funds in droves, forcing the bank to sell the bonds they own to cover the withdrawals. And if you are a bank, and the bonds you own are at 2.0%, and the current market is 5%, it stands to reason that you will have to sell those bonds at a deep discount to find a buyer. This is the “solvency” situation affecting a lot of U.S. banks right now.

How is all this affecting mortgage rates? The banking turmoil shouldn’t really impact Conforming loans, which ultimately are funded by Fannie Mae and Freddie Mac trough mortgage banks, which don’t have depositors. Jumbo loans on the other hand are largely dependent on commercial banks, and we are starting to see Jumbo lenders tightening underwriting guidelines, so we’re keeping a close eye on Jumbo.

Next week the April reading for the Consumer Price Index (CPI) will be released. We are expecting to see a meaningful decline in this inflation reading from the March numbers. If we get the drop we’re looking for, expect to see continued improvement in mortgage rate into the summer months.

Have a great weekend! 408-930-6064.

Mike"

04/15/2023

I love passing on Mike Gallagher's reports. Why? Because he's so right on. His commentary this week is encouraging. Read his report. If you've decided its time to make a move, feel free to give me a call. Have a great weekend!

Here's Mike's report:

"Happy Saturday! This week the March Consumer Price Index (CPI) report showed that overall inflation, year-over-year, declined from 6% to 5%. Inflation has declined sharply from the 9.1% peak and continues to make progress, as we have expected.

Inflation does not move lower overnight, and we’ve mentioned before that shelter costs are lagging which is why we expect to see lower inflation in the coming months as those shelter numbers filter into the inflation readings. And again, as inflation declines expect to see lower mortgage rates as a result.

The Fed is getting what they want, they just need to be patient. That said, it is doubtful the Fed will patiently let inflation naturally decline. Most economists are expecting the Fed to hike the Fed Funds rate by another .25% next month.., and that really should be their last hike..

The question of course is how much damage to the economy are these hikes doing, only time will tell. The good news is lower mortgage rates are inevitable, which will stimulate the housing market.. Historically it has been housing that has pulled us out of most recessions, so history may repeat itself."

03/18/2023

You all know I follow Mike Gallagher. He has a very interesting post today. I hope you read it. If you've decided to jump into the market, feel free to give me a call and I'll be happy to help you.

From Mike:

"Happy Saturday! This week the February Consumer Price Index (CPI) Report showed that overall inflation, year-over-year, declined from 6.4% to 6.0%. Inflation has declined by 1/3 from its peak of 9%, but is still too hot, we need to see it down to 3% or less. The question on everyone’s mind is will the Fed continue to hike the Federal Funds rate in an effort to combat inflation?

As you well know, mortgage interest rates are an important component to the housing industry. When interest rates decline it tends to fuel demand for first-time homebuyers, move-up buyer, and investors. And there is no bigger single variable impacting mortgage rates than inflation. This week’s CPI report fueled a rally in Mortgage Bonds, and mortgage rates improved by about 0.5% across the board for most loan programs.

Not everyone agrees with me on this, but I’m bullish on housing because I’m confident mortgage rates will continue to decline into the Spring and Summer months, regardless of what the Fed does from this point forward. A big part of the CPI number is shelter, and that shelter number is lagging in its reporting. So we’re pretty confident once lower shelter numbers start to report, CPI will decline further as a result, regardless of any Fed activity.

A further decline in CPI will most definitely result in lower mortgage rates. And lower mortgage rates will be just what we need for the spring and summer housing market. I’m no economist, but that’s my logic.

READ THIS!!!

Looking at the history of home prices since 1941 to today, home values have increased 74 years and decreased 7 years. That’s a pretty good record that you would not want to bet against. And the concentration of losses was during the housing bubble, where there was wild speculation, not enough demand, and a glut of supply. Things could not be more different in today’s market – Don’t bet against the champ!

10/22/2022

Mike Gallagher's take on interest rate situation:

"Happy Saturday! It is hard to believe the US Prime Rate has jumped from 4% to 6.25% in four short months. The US Prime Rate moves in tandem with the Fed Funds rate, and impacts short term and variable rate borrowing like car loans, credit cards, home equity lines of credit, short term business loans, etc..

We’re likely to see Prime hit 7.0% in November after the Federal Reserve meets on 11/2, and could be at 7.5% by year end as the Fed has one last meeting in December. As you know, all these hikes are an effort to slow borrowing down, slow spending, and cool inflation.. And there are some signs it is beginning to work..

One of the smartest minds in the world, Dr. Lacy Hunt, believes the money supply, beginning in March, will fall to a more neutral level that removes all the excess that was created over the past two years…if the Fed continues it’s path of tightening. I’m sometimes accused of only digging up a position that supports my optimistic outlook, but I’m in this guy’s camp.

If Dr. Hunt is correct, we will begin to see long term yields begin to come down next year, including 30-Year fixed mortgage rates. This is the reason homebuyers are finding it difficult to find a 0 point loan right now, lenders know the loans originated today stand a high likelihood of being refinance in the next year or two. Charging points ensures some profitability of the loan in the event of an early payoff.

So there is light at the end of the interest rate tunnel. And this could be setting the stage for a strong Spring 2023 home-buying season..

Mike"

08/27/2022

Mike Gallagher reports on the impact of the interest rate increases on mortgage rates and inflation. This is always a difficult concept for most people to initially grasp. And, to understand that it is not necessarily an increase in interest rates leading to a direct increase in mortgage rates:

"While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," said Fed Chair Powell Friday morning.

It didn’t take long for the “pain” he mentioned to set in, as the stock market began the worst sell-off in 2 months, the Dow closing Friday down -1,008 points. If you’ve been following this story, all this should not be surprising. This is the natural consequence of steadily increasing the Federal Funds Rate in an effort to slow the economy and cool inflation.

Powell’s message pretty much telegraphed that we have another Fed Funds rate hike coming in September, most likely another .5%. I’m in the camp of believing what the Fed is doing is the right thing to do, inflation is far more damaging than a recession. So until inflation is under control, expect more rate hikes.

How does all this affect mortgage rates? What is unfolding is actually a good thing as far as mortgage rates are concerned. Inflation is the arch enemy of mortgage bonds, and so the bond market actually likes these rate hikes as it sends the message that the Fed is serious about fighting inflation. So there is some hope that we may be close to seeing the peak in mortgage rates.

Once you begin seeing month-over-month data supporting lower inflation, you will begin to see mortgage rates come back down as well. Lower rates will help support the housing sector which I’m predicting will be exactly what pulls us out of the recession. Until then, hang on…

Have a great weekend! Let me know if I can help with any client pre-approval, call/text me at 408-930-6064.

Mike"

06/19/2022

Mike Gallagher’s weekly report on interest rates. You’ll find this “interesting”…

“Happy Saturday! The Federal Reserve apparently read the memo that inflation in the U.S. is real. This week the Fed hiked the Fed Funds Rate by .75%, the largest single hike in 28 years. This of course is intended to slow the economy and cool inflation.



To add fire to the inflation concerns, the Swiss Bank surprised the markets this week with a .5% hike, the first rate hike by the Swiss in 30 years. This sent a wave of central bank rate hikes around the world this week from Brazil to Bahrain. Inflation is a worldwide problem..



Contrary to what the media reports, and your clients believe, mortgage rates did not spike by .75% this week, they actually improved slightly.. This of course is because the Bond Market liked the hike, as it shows the Fed is finally dealing with the inflation problem. Inflation is the arch enemy of Mortgage Bonds, so the action the Fed took this week was good thing for mortgage interest rates.



There is a lot more wood to chop here, the inflation genie does not magically go back into the bottle with a .75% rate hike. There will likely be a minimum of another 1.0% in hikes this year, if not more..



The concern grows now to employment, as pumping the brakes on the economy will eventually lead to rising unemployment. But unless your job is at risk, recession is a far easier pill to swallow that inflation..



Have an awesome Father’s Day/Juneteenth Weekend! Call or text if I can help with any client preapproval, 408-930-6064.

Mike”

06/11/2022

Mike Gallagher shares his thoughts on interest rates. The good news, if there is any, is that he thinks that buyers now will be able to refinance at a lower rate down the road. Have a good weekend and call me if you are interested in buying or selling. Patric

Happy Saturday! Updated Rate Sheet attached. YIKES! That is about the only word to describe yesterday’s May Consumer Price Index reading. The Consumer Price Index (CPI) is one of the favorite measures of inflation. And if you’re one of my good students who reads these weekly commentaries, you know by now that inflation is the single biggest determining factor on where mortgage rates are headed.



Mortgage Bond investors do not like inflation as it erodes the value of their fixed payment investment. Yesterday’s report was not pretty, causing a major sell off in Mortgage Bonds, resulting in mortgage rates inching up about .25% in a single day.



The Fed’s “target” for inflation is 2% annually. May’s report showed a 1% increase, in one month. The yearly reading came in at a scorching 8.6%, a 40 year high. This has all but guaranteed the Fed will hike the Fed Funds Rate another .5% at next week’s meeting. And a good chance another .5% hike in July and September. The Fed is doing this of course in an attempt to slow the economy down to cool inflation.



So we’re probably stuck with these stubbornly high mortgage rates at least through the summer months. But I’m standing behind my belief that the homebuyers today will have an opportunity to refinance into a lower rate sometime in the next 12 to 24 months once inflation comes back down to earth…



Have a great weekend. Call or text me if I can help with a client preapproval, 408-930-6064.
Mike

05/21/2022

Mike Gallagher's weekly take on the status of the economy and its effect on interest rates.

"Happy Saturday! Slowing economic growth with some pundits calling for a recession later this year along with plunging stock prices are lifting mortgage bonds, so for the moment mortgage rates have stabilized.

The 10-year Treasury yield has fallen to 2.80% from 3% seen just earlier in the week. The unemployment line still remains historically short - but it could grow quickly. We are already starting to see firms stall on hiring and even shed headcount.

And speaking of recession - Q1 2022 GDP was a negative 1.4%. The 2nd Quarter is forecasted to be around 1.6% - so essentially zero growth. What has not been felt yet in the economy is the negative wealth effect caused by sharply declining stocks. When people see their 401K and brokerage accounts take a big haircut - they spend less..

We shall see if this negative wealth effect once again causes disinflationary pressures in the months ahead. Energy prices have pulled back modestly but remain at $107 a barrel. If energy prices do not recede, this will continue to be a very tough environment for the Fed to hike rates aggressively. The Fed has never hiked rates with oil over $100 a barrel - so yes, we are making history.

Next week's data heats up with the Fed's favorite inflation gauge, the Core PCE (Personal Consumption Expenditure), being released along with housing numbers. Stay tuned…

Have a great weekend. Let me know if I can help with any client preapproval, call/text me at 408-930-6064.

Mike"

05/17/2022

Mike Gallagher's Interest Rate Analysis. Sorry, I'm a little late on this one.

"It’s a strong economy and nothing about it suggests it’s close to or vulnerable to a recession. We have a good chance to restore price stability (lower inflation) without a recession." Fed Chair Powell Wednesday of this week.

Powell’s statement came moments after the Fed raised the Fed Funds Rate by .5%. It’s a pretty bold statement, and most experts and economists don’t share his optimism. But what is he going to say, “we screwed up, waited too long to start the rate hikes, so brace yourselves for persistently high inflation, and the recession which is around the corner”? The Fed has put themselves in the difficult position of having to slow the economy down to curb inflation (with more rate hikes) without crashing the plane in the process…

The bond market is still very leery about inflation. Mortgage Bonds continued to sell off this week, pushing yields (and mortgage rates) higher as a result. This is all due to inflation, including oil which spiked to $110/barrel. Inflation is the arch enemy of mortgage bonds because it erodes the value of a fixed payment. Once you see inflation numbers begin to cool, you will see mortgage rates come back down as well…but it could be a while..

Next week the Consumer Price Index (CPI) numbers are released for April. This is a widely accepted measure of inflation, so stay tuned.

Mike Gallagher
Senior Mortgage Advisor
NMLS -120703
c: (408) 930-6064

05/12/2022