A Look at the refinance activity, Mortgage Rates, and the outlook in Q3, 2022.

As witnessed, refinancing went considerably low compared to previous years. However, mortgage equity withdrawals continue to increase since most people use the second home loan, also known as home equity, to finance their housing. During Q2 in 2022, cash withdrawals fell to 30%, leading to an increase in home equity lending of 30% quarter over quarter, the highest increase witnessed twelve years ago. According to the flow of funds report, mortgage debt between May and July 2022 increased to 260 billion dollars. In the past years, mortgage debt declined due to homes sold on short sales and foreclosure wiping out the massive debt. Since part of the debt is used to add stock to the housing market, it cannot be classified as mortgage equity withdrawal.

MORTGAGE DEBT AS PART OF GDP.

During Q2 in 2022, mortgage debt was at 1.4 trillion dollars but was 48.9% lower than Q1 as a percentage of gross domestic products, and also slightly higher than during the housing bust. It, therefore, shows that homeowners have considerable home equity, which makes mortgage equity withdrawal, not a bother.

MORTGAGE EQUITY WITHDRAWAL AND RISK ESTIMATES

According to calculations carried out by the Fed’s flow of funds data, Net Equity Extraction was 169 billion dollars of the disposable personal income. Equity extraction in the last year increased as compared to previous years. Mortgage rates are currently constantly moving, both higher and lower. In the last week, mortgage rates lowered slightly, although the new rates are still high shortly after delving into Q3 in 2022. Compared to Q2, specifically in June, mortgage rates were low, and one would have to trace back to 2008 to witness higher rates. Although various improvements were implemented, the impact was not felt because the stock market started to lose ground shortly after a scheduled auction of decade-old treasury notes. Although a ten-year-old treasury is not associated directly with mortgage rates, it affects bonds that predict the mortgage. The two factors interact well depending on the day

Bonds and rates are used interchangeably and are essential in Fed Fund’s policy. For instance, the approach is more likely to lend loans to a group of people who want the money acquiring mortgage bonds than to people who require a loan for investing in a ten-year treasury.

Fed funds rely heavily on a short life span spectrum which is crucial to all traders and thus the reason why they love dealing with a mortgage since they are more profitable in shorter periods.

Fed funds are also very strategic in tackling inflation. By raising the fund’s rate and making capital costs higher, the flow of credit to enterprises and end users lowers, pushing demand lower and pressuring the market prices.

Such factors are important as far as mortgage rates are concerned since Fed considers such data when the amount is to be hiked for the Fed fund rate. Higher inflation rates than expected and robust data will lead the Fed Fund rate to hike prices, negatively impacting mortgage rates and making it almost impossible for people to acquire homes.

The high Feds rate predictions are highly dependent on the upward shift in the shorter term, such as mortgage rates. The above principle is inversely proportional to a ten-year treasury.

For the case of Q3, if inflation is going to happen, the Fed fund will thus increase the funding rate and thus lead to higher mortgage rates. Therefore, it indicates that house market prices might increase in the tight market with high demand exceeding supply which is why Q2 experienced decline in financing of homes and opting for equity loans due to the impacts of high inflation. The trend might proceed in Q3 if the issue is not resolved.

CONCLUSION

Summing up, mortgage rate, Treasury notes, and Fed fund policy work hand in hand directly or indirectly. As a witness in the year’s second quarter, high inflation rates negatively affected homeowners refinancing their homes, leading them to home equity loans resulting from the high living costs.

Mortgage debt increase is also vivid with over 200 billion dollars, the highest debt recorded since 2006. However, as the debt rates rise, the number of new houses continually increases, showing some hope of saving the high inventory levels.

Mortgage debt is taken as part of GDP percentage and prospected to be higher compared to Q1 by 48% and at the same time down 73.3% from the high levels experienced during the housing bust whereby the actual figure was 1.46 trillion dollars from the top.

Although there is a rise in the mortgage equity withdrawal, the percentage is minute as disposable personal income than during the housing bust. Most homeowners have enough equity and mainly rely on home equity lines for equity acquisition.