Last week, we saw the requested and accepted resignation of the Consumer Finance Protection Bureau’s leader Kathy Kraninger, and her nominated successor is Rohit Chopra, a member of the Federal Trade Commission. Mr. Chopra previously worked at the CFPB in its early days, and was the bureau’s student-loan ombudsman and later assistant director under Richard Cordray, who favored a more punitive approach to regulation than did subsequent Bureau leaders. With all the re-regulation of the mortgage market since the financial crisis of more than a decade ago, odds don’t favor any significant changes to the mortgage process anytime soon from the CFPB.

It would appear that the successor to Steven Mnuchin at Treasury will be Janet Yellen, the former head of the Federal Reserve. She would be the first woman to hold the position, just as she was the first woman to helm the central bank. At her Senate confirmation hearing, she urged that the legislative body “act big” when it comes to a new stimulus program, and will be in the position of championing President Biden’s proposed $1.9 trillion plan announced in the previous week. The Treasury will of course be issuing more new debt to finance new spending, and this will come at a time of record levels of government debt already. Ms. Yellen’s experience at the Fed and connections there will be useful in trying to eventually steer the government back toward something resembling a more balanced approach to tax and spending policy.

For the moment, it’s not clear what if any changes may come at the Federal Housing Finance Agency, presently headed by Dr. Mark Calabria. whose current term as director doesn’t expire until 2024. A Supreme Court case heard last month may decide whether or not the President has the authority to fire the FHFA director on an at-will basis. The agency presently has a structure akin to the one that was the CFPB, but that agency’s construction was ruled unconstitutional last year. Dr. Calabria has been looking to release Fannie Mae and Freddie Mac from government conservatorship and back to private ownership as part of reforming the housing market, but the two remain wards of the federal government more than 12 years after crumbling during the housing market crisis.

The last regulatory group that’s important to the mortgage market should also see no immediate change, as Federal Reserve Chair Jay Powell’s current term runs until next year, and at the moment, there’s little reason to think that he wouldn’t be reappointed. At the very least, it means that accommodative monetary policy, low rates and open-ended bond-buying programs are likely to continue. Under Powell, the Fed is using nearly an “all-in” strategy for monetary policy, employing both conventional and novel tools to support the economy. As well, the Chair has also at times implored the Congress to provide greater fiscal support. With a new monetary policy framework in place, the Fed would appear to be supportive of greater levels of government spending to spur growth; in turn, this could stoke firmer inflation, something that has eluded the Fed for many years now.

The housing market is certainly warm, but is it overheating? Probably not. Low rates and limited inventory amid strong demand have caused prices to rise very quickly, something on the order of 3-4 times the rate of income growth at a minimum. Falling mortgage rates have fostered this, since a lower rate allows for a given income to be able to carry a larger loan amount. However, it would appear that the bulk (perhaps all) of the declines in rates have occurred, and with the prospects for greater stimulus, increasing levels of vaccination and what should be declining levels of infection now that the holiday surge is passing that there are likely more reasons for mortgage rates to be steady to perhaps slightly higher as we go. Absent the falling-rate offset, higher home prices may start to bite into affordability a bit more, and that would provide tempering for price gains.

Existing home sales in December edged 0.7% higher, rising to an annualized rate of 6.76 million for the month. For 2020 as a whole, 5.64 million sales took place, a figure a little above our expectations for the year, but when we wrote our 2020 forecast in late 2019, we didn’t foresee the pandemic or its effects on interest rates and housing markets. Regardless, sales of existing homes for the month were at their highest annualized rate since 2006, with the median price of a home sold 12.9% above year-ago levels, with nominal prices just a little below all-time highs.

With prices high and nothing to buy — and now mortgage declines leveling off — the housing market is likely to be an increasingly challenging one for potential buyers until more supply comes on line. Although typically thin during the holidays, the current amount of supply is pegged at just 1.9 months at the present rate of sale, down from 2.3 months in November, and will remain extraordinarily tight even is this level doubles before spring (which seems unlikely).

If we get to a point where inflation is running warm for a while period and if we get to a place where unemployment is closing in on pre-pandemic levels for a good while, we’ll then see investors injecting concerns into mortgage pricing, and that only if the Fed isn’t still snapping up billions of dollars of mortgages every month. At present, wandering around just above all-time record lows is about all mortgage rates can do.

Mortgage Market information provided by Jon Aucutt, Main Street Bank
31780 Telegraph Road, Suite 100
Bingham Farms, Michigan 48025
jaucutt@msbmi.com