The average 30-year fixed mortgage rate reached 7.50% this week, the highest all year. It’s because of a “hotter-than-expected inflation report and the Fed’s confirmation that interest rate cuts will be delayed,” Redfin’s data journalist, Dana Anderson, wrote today in a housing market update.
But it’s not only mortgage rates; home prices are rising too. The median home sale price rose 5% over the last year in the four weeks ending April 14, to $380,250. It’s lower than the all-time high reached in June 2022 in the pandemic housing boom, but only by $3,095, according to Redfin.
“The combination of high mortgage rates and prices have brought homebuyers’ median monthly housing payment to a record $2,775, up 11% year over year,” Anderson wrote.
Data released today shows that existing home sales dipped 4.3% from a month earlier and 3.7% from a year earlier. “Home sales are stuck because interest rates have not made any major moves,” NAR’s Chief Economist Lawrence Yun said in a statement accompanying the release.
Things didn’t seem like they could get much worse. Already, home prices swelled more than 50% in a matter of four years; the salary Americans need to afford a starter home has nearly doubled since the start of the pandemic to almost $76,000 a year; the typical household makes almost $30,000 less than what’s needed to buy a median-priced home; and renting will be cheaper than buying for years (and don’t be fooled, rents are still high).
It’s not clear when or if mortgage rates will drop, but they might never fall to the historical lows seen throughout the pandemic. Toward the end of last year, some forecasts predicted mortgage rates would end the year lower than last year, and there was at one point anticipation of three interest rate cuts this year, but that no longer seems likely. Federal Reserve Chair Jerome Powell said it himself earlier this week, that interest rates aren’t coming any time soon. “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work,” Powell said.
Sometimes it can seem like a never-ending cycle. When mortgage rates are high, relative to what they were years before, people stop selling their homes. No one wants to lose a 3% mortgage rate, let alone for one that’s 7%; it’s why existing home sales fell to their lowest point in nearly three decades last year. But when people stop selling their homes, there’s less supply, and really not enough to meet demand when coupled with our existing housing crisis (and still, fewer homes are being built). So it becomes about simply supply and demand dynamics; more demand than supply pushes home prices up, worsening affordability. Redfin’s data shows there’s more than three months of supply; in a healthy housing market, four to five months of supply is the norm.
The median home sale price only declined in one of 50 of the most populous metropolitan areas, according to Redfin. That was in San Antonio, and it was still just a 1% decline. Whereas, one metropolitan area saw its median home price increase almost 25%: Anaheim.
Some expect home prices to continue rising, although it varies by how much. Zillowsees home prices increasing less than 2% this year, but Capital Economics sees them climbing 5% this year. And none of this accounts for insurance woes, the sort of dark horse in the housing market that seems to be becoming more and more of an issue, especially in California and Florida.
Maybe the pivot spring season, or simply this year’s mini version, is coming to an early end—or maybe, the housing market isn’t really thawing meaningfully.
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For Baird Advisors co-chief investment officer Mary Ellen Stanek, success in fixed income isn’t about hitting home runs. Instead, it’s important to have “a really high batting average,” the 45-year industry veteran told CNBC. “We don’t think this is an asset class where you’re paid typically to hit home runs,” she said. “If you think about those big home run hitters, often they also have very high strikeout percentages — and that’s the thing we’re trying to avoid.” Instead, Stanek strives for consistency. She takes a duration neutral approach, setting the duration equal to that of the benchmark each fund follows. The team then spends its energy on areas they believe have a higher probability of adding value — looking at yield curve positioning, sector allocation and individual security selection, she said. The result has been extremely competitive track records, said Stanek, who, as co-CIO, oversees $136.5 billion in fixed income assets, as of March 31. “There’s a lot of value that we’ve created for investors with a predictable, and we would argue, a smoother ride than most products,” she said. That success can be seen in funds like the Morningstar five-star, gold-rated Baird Aggregate Bond Fund . Institutional shares, which trade trade under ticker BAGIX, have a 30-day SEC yield of 4.36% and expense ratio of 0.30%. Investor shares, which trade under ticker BAGSX, have a 4.11% 30-day SEC yield and 0.55% expense ratio. BAGSX 1Y mountain Baird Aggregate Bond Fund, investor shares Since BAGIX’s inception in 2000, it has seen a 4.74% annualized gain through March 31, 2024, according to Baird. During that time, it beat its benchmark — the Bloomberg U.S. Aggregate Index — by 66 basis points, the firm said. It also sits in the top quintile among its peers, per Morningstar . One basis point equals one-hundredth of a percentage point. From bear market baby to industry accolades Stanek’s investment philosophy has been honed throughout her years of experience. She grew up the daughter of a banker and worked college summer breaks at her father’s community bank. That experience helped her land her first post-college job in fixed income in 1979 at First Wisconsin Trust. That was just as interest rates began to move sharply higher and became very volatile. By July 1981, the yield on the 10-year Treasury hit 15.82% “We grew up as bear market babies in a hyper-risk environment, where we really had to get very, very sharp about both understanding the risk we had, and then the calibration of the opportunity versus the risk,” Stanek said. A few years later, she was promoted to chief investment officer. In 1985, she launched her duration neutral strategy and hasn’t looked back. In 2000, she was among the leaders who founded Baird Advisors. The team runs a number of fixed income funds in addition to the Baird Aggregate Bond Fund, including the Morningstar five-star rated Baird Intermediate Bond Fund. The product was one of the top performing actively managed bond funds in 2023, according to Morningstar. BIMSX 1Y mountain Baird Intermediate Bond Fund, investor shares “It’s our job to deliver both a competitive product and attractive returns, but also in a format and understandable that you can understand the risks we’re taking, and that you can feel comfortable and confident and sleep better at night,” Stanek said. Along the way, she has also collected accolades, including being named to Pensions & Investments’ 2023 Influential Women in Institutional Investing , and in 2022 being crowned outstanding portfolio manager by Morningstar. Where she sees opportunity now Stanek and her team are being very selective right now as credit spreads have gotten tighter. The allocation to Treasurys has gone slightly up in the portfolios, while credit has dipped a bit. “We’re placing new money selectively, selling when things have gotten too tight in our opinion, and being very patient, making sure we’re keeping dry powder in the portfolios for better opportunities,” she said. Within bonds, investors should consider going out the curve, she said. With the yield curve still inverted, short-term term Treasury bills are yielding over 5%. “While that’s attractive, don’t get caught,” Stanek cautioned. “At some point, the curve will right itself and short rates will drop, and then you’ll be sorry that you didn’t lock in these higher yields for a longer period of time,” she said. Stanek suggests doing annual reviews of your portfolio to determine if the asset allocation still makes sense. For those with a longer-term horizon who want to move out the curve, do it in stages, she said. “A lot of people will be immobilized if it’s that big one-time decision,” Stanek said. “Get a plan and maybe you do it in three tranches, or … a chunk every quarter, and know fully that you’re continuing to move out the curve in a methodical way.” She also sees some opportunities within securitized products, such as residential and commercial agency mortgage-backed securities , as well as AAA-rated non-agency MBS assets. “The securitized sectors that tend to be higher quality generally continue to offer pretty good value,” she said. “But very selective — we are bottom]-up investors.” Diversification is also important because as good as yields are right now, there is a long list of things that could potentially go wrong, Stanek said. It all comes down to managing risk carefully, she said. “At times, we say to ourselves, we’ve seen this movie before,” Stanek said. “If we’re not being paid to take on more risk in the portfolios, it’s OK if we continue to look for higher-quality spots to invest in and be patient and wait for better relative risk, relative value.”
It’s unclear when the Federal Reserve could begin cutting interest rates, but many homeowners who took out a mortgage in recent years — as rates hovered between 6% and 7%, and even touched 8% — are paying attention for opportunities to refinance.
Thanks to those high mortgage interest rates, refinance activity in 2023 was at the lowest level in 30 years.
In the first and second quarters of 2023 there was only $75 billion and $80 billion, respectively, in mortgage refinance originations nationally, according to Freddie Mac, a government-sponsored entity that buys mortgages from banks.
“Because rates shot up so much over the past few years, refinancing activity has mostly disappeared,” said Jeff Ostrowski, a housing analyst at Bankrate.
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Refinancing activity rose 2.9% in February compared with last year, Freddie Mac found.However, fewer owners might refinance their loans as they might still be locked in on historically low rates or may see little incentive to do so, the mortgage buyer forecasts.
As homeowners wait to see when Fed rate cuts might materialize, and to what extent, here are three signs it may be smart to refinance:
The right time to refinance your loan depends on when you bought your house, said Chen Zhao, a senior economist at Redfin, a real estate brokerage site.
It’s typically smart to wait for rates to go down by a full percentage point because it makes a significant difference in your mortgage, experts say.
Yet, once you start seeing rates decline by at least 50 basis points from your current rate, contact your lenders or loan officers and see if it makes sense to refinance, depending on factors including the costs, monthly savings and how long you plan to be in the home, Zhao said.
“There are costs associated with it, but the costs are low in comparison to the savings over the long term,” said Zhao.
While the outlook on Fed rate cuts continues to change, rates are unlikely to go much below 6% in the near term, Zhao said.
“We’re just in a much higher interest rate situation with the economy,” she said.
Don’t hold out for a super low rate like the ones consumers saw in the early stages of the Covid-19 pandemic.
“We’ve been so accustomed to mortgage rates as a baseline being at 2% or 3%,” said Veronica Fuentes, a certified financial planner at Northwestern Mutual. “That’s what we expect the norm to be, but that’s actually not the case.”
When you refinance, “it’s like doing a brand new loan all over again,” Ostrowski said.
That means you’ll incur closing costs, typically including an appraisal and title insurance.
The total cost will depend on your area or state.
The average closing cost for a refinanced single-family mortgage was $2,375 in 2021, up 3.8%, or $88, from $2,287 a year prior, according to CoreLogic’s ClosingCorp, a provider of residential real estate closing cost data.
Refinancing can make more financial sense if you are able to pay those upfront instead of rolling the expense into your new loan. Some lenders may require a higher interest rate if you finance closing costs, plus you’ll be paying interest on those expenses for the life of the mortgage.
“You have to be pretty mindful and have a good strategy for how much money you’re going to save and whether it makes sense,” Ostrowski said.
If you bought your home with an FHA loan, you might have a reason to refinance. While such loans are a “great tool” for securing a home as a first-time buyer, there’s a required mortgage insurance premium, or MIP, that can be costly, said Ostrowski. Most new borrowers pay an annual MIP that is equivalent to 0.55% of their loan, according to government figures.
“If you got an FHA loan, it could make sense to refi for a rate that is only a little bit lower if you’re going to be able to knock out that mortgage insurance premium,” he said.
For example, on a $328,100 FHA mortgage, the owner would pay annual premiums at 0.55% rate for the life of the loan, equal to $150 monthly payments, according to calculations from Bankrate.
It’s not unusual for new homeowners to face financial surprises, but people buying a newly built home may be more likely to encounter sticker shock on a key expense.
Almost 75% of recent homebuyers had regrets about their purchase, according to a 2023 survey from Real Estate Witch. Property taxes were the most common gripe, surprising 33% of new owners.
With new builds, property taxes can change dramatically after purchase because initial rates are often based on estimates. That can be jarring for homeowners who already stretched their budgets to afford a home in the current market.
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Newly built homes comprise 30% of the current market, up from the typical 10% to 20%, according to a recent report by the National Association of Realtors. As more buyers turn to builders, potential owners need to be aware of how costs might increase after even just a year, experts say.
“Buyers need to understand that real estate taxes … are not static. They can change on an annual basis,” said Melissa Cohn, regional vice president at William Raveis Mortgage. “People don’t really have any control.”
When lenders qualify someone for a home purchase, they factor in the principal, the interest payment on the mortgage, homeowner’s insurance and property taxes.
But unlike previously owned homes, new builds lack a tax bill because there’s no house to assess yet, experts say. Instead, mortgage lenders will often use an older tax rate from the area or an estimated tax rate to calculate the owner’s monthly payment.
The calculation is going to vary by lender, said Brian Nevins, a sales manager at Bay Equity, a Redfin-owned mortgage lender. Some take 1% to 2% of the sales price of the home for the property taxes, while others multiply one-third of the sales price by the local tax rate to determine estimated taxes.
Initially, the homeowner will typically pay the estimated property tax rate into escrow. Depending on the local tax assessment cycle, the county office will eventually assess the value of the new house to determine the actual property tax rate.
“All counties reassess a property’s taxes — it depends on when,” Cohn said.
While some places may differ on frequency, “if it’s new construction, they always reassess,” she explained.
And at that point, if the homeowner has an escrow account, they may learn they have a shortage, meaning they owe more property taxes than expected.
If the homeowner cannot pay the owed taxes in a lump sum, the lender usually pays what’s owed. In that case, the owner pays back the lender through an increased mortgage payment to make up the difference.
“People who buy today with the assumption that they qualify based on the current real estate taxes or current insurance need to really do more homework to understand where they could really be in a year,” Cohn said.
If you’re looking to buy in an area you’re unfamiliar with, find out how often the county reassesses property taxes and what the reassessment formula is based on, Cohn said.
Additionally, you may want to consult with a local loan officer who understands the landscape of the area you’re buying into, Nevins said.
If some newly built homes in your neighborhood with similar square footage have been around for a year, you could check the property address on a real estate site and get a ballpark estimate of what your taxes might be, said Veronica Fuentes, a certified financial planner at Northwestern Mutual.
However, tread with caution: When you look at real estate taxes listed online, those are the taxes the current owner pays, not what you will pay, Cohn said.
Correction: This story has been updated to reflect that some lenders estimate initial property tax rates for new builds based on one-third of the sales price multiplied by the local tax rate. An earlier version of this story misstated that formula.
Investors looking for high-quality income, as well as a bargain, should turn to agency mortgage-backed securities, according to UBS. The bank thinks the securitized products are relatively cheap compared to investment-grade corporate bonds, said Leslie Falconio, head of taxable fixed income strategy in UBS Americas’ chief investment office. They also have current yields around 5.7%, she told CNBC in an interview Friday. Agency MBS are debt obligations backed by the government and are issued by agencies such as Fannie Mae, Freddie Mac and Ginnie Mae. Their cash flows are tied to the interest and payment on a pool of mortgages. “This is a triple-A asset class with pretty much no credit risk and a tremendous amount of liquidity at a time when we are not expecting a hard landing and we do expect the economy to slow,” Falconio said. When the Federal Reserve paused its interest rate hikes last fall, and it became apparent rates were at their peak, all fixed income did well, she explained. However, agency MBS lagged their higher-quality counterparts because they are highly correlated to interest rate volatility, she said. “The tailwind we saw in 2023 that allowed high-yield and investment-grade corporate credit to do well did not spill over to mortgage credit until starting this year,” Falconio said. “They are cheap on a relative value basis.” She specifically likes current-coupon mortgages. Investors can play the space by using exchange-traded funds. The iShares MBS ETF (MBB) has a net expense ratio of 0.04% and a 30-day SEC yield of 3.54%. The Janus Henderson Mortgage-Backed Securities ETF (JMBS) touts a 30-day SEC yield of 5.37% and carries a net expense ratio of 0.23%. While there will be some continued interest rate volatility in the short term, as the market reacts to different data points, that should decline over the course of the year, she said. As gross domestic product slowly trends lower, the market will become more comfortable with the likelihood of the Fed cutting rates, Falconio said. Interest rates will move lower and MBS, as a cheaper option, are going to benefit from inflows, she predicted. Banks, which have been investing excess deposits in Treasurys, will be among those turning to agency MBS, Falconio said. Banks will see rising deposits and weaker loan growth as the economy slows, and they will turn to MBS to lock in higher yields, she said. In addition, the negative effect of the inverted yield curve on agency MBS will reverse this year. UBS thinks the yield curve will normalize and by the end of the year could be slightly upward sloping.
A ‘For Sale’ sign is posted on the lawn in front of a home on March 15, 2024, in Miami, Florida.
Joe Raedle | Getty Images
The usually busy spring housing market is underway, but mortgage demand isn’t moving. Application volume was essentially flat last week, dropping 0.7% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.93% from 6.97%, with points decreasing to 0.60 from 0.64 (including the origination fee) for loans with a 20% down payment.
Applications to refinance a home loan fell 2% for the week and were 9% lower than the same week one year ago. Mortgage rates today are still about a half a percentage point higher than they were at this time last year, so recent borrowers have no incentive to refinance. Anyone with an older mortgage than that likely has a rate that is half of what is currently being offered.
Applications for a mortgage to purchase a home decreased 0.2% from the week before and were 16% lower year over year.
“Purchase applications were essentially unchanged, as homebuyers continue to hold out for lower mortgage rates and for more listings to hit the market,” said Joel Kan, an MBA economist in a release. “Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6-percent by the end of the year.”
Mortgage rates have basically moved sideways to start this week and are unlikely to change until next week, when more economic data is set to be released.
“Rates are driven by bonds, and bonds are waiting on the most relevant economic data to offer a comment on the path of inflation and the economy in general,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “If inflation falls a bit more or if the economy shows marked signs of weakening, it would tip the scales in favor of lower rates.”
Luxury vacation home co-ownership platform Pacaso is attempting to appeal to the masses, as it grows its business during a pricey and competitive phase of the housing market.
The company, which launched in 2020 with multimillion-dollar homes listed for co-ownership, is now introducing thousands more listings with share prices starting as low as $200,000. Previously, shares had been closer to half a million dollars, or higher.
Pacaso lists shares of vacation homes, generally an eighth but sometimes larger shares, and then facilitates the purchase, including financing if necessary. It also furnishes and manages the home, divvying up the owners’ time in the home through an app. It takes fees for both the purchase and the management.
“You can afford a lot more home when you buy one eighth or one quarter of it when compared to purchasing the whole thing, and we’re living in an environment right now where housing affordability is a problem,” said Austin Allison, co-founder and CEO of Pacaso. “Home prices are high, interest rates are high, so it’s really difficult for people to afford the home of their dreams.”
Unlike timeshares in resorts, where consumers buy the time, not the property, Pacaso owners can benefit from the home’s value, which usually goes up over time.
An example of Pacaso’s new lower-priced vacation home listings.
CNBC
“Our owners who have resold have benefited from about 10% appreciation above and beyond what they paid for the underlying home previously. So the Pacaso shares generally track with the underlying real estate,” said Allison.
Wealthier buyers have been scooping up ski homes in Colorado and beach homes in Hawaii, paying hundreds of thousands of dollars for their shares. Pacaso takes a hefty fee — between 10% and 15% of the value of the home on the front end — associated with aggregating the group of owners, facilitating the transaction, and setting up the co-ownership structure.
Pacaso reached more than $1 billion in revenue last year, the company said.
The company has, however, seen some backlash from communities that liken it to an Airbnb on steroids. There is even a website dedicated to fighting the company, called “Stop Pacaso Now.”
Residents of Sonoma, California, passed an ordinance prohibiting Pacaso from operating in that city. In St. Helena, California, which prohibits timeshares, Pacaso reached a settlement that protects its four homes already there, but the company is not allowed to expand to other properties.
“We operate in more than 40 markets nationwide and in only a handful are we misunderstood,” argued Allison. “Our approach is to work with policymakers and educate them on the facts and benefits. Our belief is that over time this will prevail. It hasn’t worked in Sonoma yet and a small handful of communities who have passed ordinances to resist the model.”
Pacaso is also adding a new suite of services to help primary homebuyers access the home-sharing model. Roughly one-fifth of primary homebuyers last year purchased with either a friend or relative, according to real estate site Zillow.
“People are now using co-ownership as a way to be able to afford houses that they otherwise wouldn’t be able to afford. So, it’s not just happening in the vacation home space,” said Allison.
The Justice Department has secured $122 million from a dozen banks and mortgage companies in redlining cases since Attorney General Merrick Garland announced the agency’s Combat Redlining Initiative in 2021.
Haiyun Jiang/Bloomberg
When the Justice Department alleged last year that American Bank of Oklahoma had engaged in redlining, emails containing racial slurs became a focal point of the allegations. One bank executive forwarded an email that proclaimed “Proud to be White!” and used the “N word” in its entirety and other racial slurs.
In another separate redlining case against Trident Mortgage, the Justice Department described how loan officers, assistants and other employees received and distributed emails containing racial slurs and content that used racial tropes and terms. The communications sent on work emails included a photo showing a senior loan officer posing with colleagues in front of a Confederate flag, and pejorative content related to real estate and appraisals and content targeting people living in majority-minority neighborhoods. Trident, which is owned by Warren Buffet’s Berkshire Hathaway, settled the DOJ’s complaint in 2022 for $24 million.
Since the Justice Department launched its Combatting Redlining Initiative in late 2021, racist emails have received more attention from both the DOJ and the Consumer Financial Protection Bureau in an effort to show racial bias has permeated a company’s culture.
Discriminatory emails on their own have not been used to allege redlining. Rather they are combined with key lending statistics that show how lenders compare with their peers in making loans in minority communities and whether a lender has avoided locating branches or hiring loan officers in minority communities. All of that, taken together, is then used to show intentional discrimination.
In some cases the emails help regulators differentiate among lenders that are not providing equal access to credit.
Banks rarely push back against redlining claims and typically choose to settle such cases, often citing the cost and distraction of protracted litigation as the reasons for reaching an agreement with authorities. But some legal experts say that financial institutions have little control if a racist email is sent to an employee from outside a company. A distinction is being made when discriminatory emails are sent by a company’s employees, or are forwarded to others even without comment.
“Holding a company accountable for an employee’s views or statements, even when those statements are inconsistent with the company’s values and culture, places a burden on that company to censor its employees to avoid the risk of being branded as a discriminatory lender,” said Andrea Mitchell, managing partner at Mitchell Sandler, who represented American Bank of Oklahoma.
“There are limits on an employer’s ability to prevent staff from receiving racially insensitive emails or sharing personal views to exercise their right to freedom of expression,” she added.
Still, legal experts are quick to point out that discrimination is against the law. Employees have no First Amendment rights to assert when using a company’s communication system.
“If there are racist jokes or an employee saying they’re proud to be white, they’re not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They’re just using it as evidence to bolster claims of discriminatory intent,” said David E. Bernstein, a law professor at George Mason University School of Law.
Lisa Rice, president and CEO of the National Fair Housing Alliance, recalled working at the Toledo Fair Housing Center nearly two decades ago and routinely sending requests for emails, text messages and audio and video recordings that included a list of specific racial slurs.
“We’ve always been able to use public statements, verbal or written, as evidence in fair housing and fair lending cases,” said Rice. “You can request for emails to be turned over and those emails can be used as evidence and as evidence of discrimination. And they might even be used as evidence of discriminatory intent.”
She added that regulators “may not have gone full throttle” in using emails in the past to bolster claims of intentional discrimination.
To be clear, racist emails are found in a minority of redlining cases currently being brought by the DOJ.
Though searching hundreds of thousands of emails or texts is a ponderous task, sophisticated tools, including those that utilize artificial intelligence, can make it much easier to root out racist terms. In some cases there may be just a handful of racist emails out of hundreds of thousands.
“This is old-school redlining using new techniques,” said Ken Thomas, president of Community Development Fund Advisors and an expert on the Community Reinvestment Act, which requires that banks lend to low- and moderate-income communities. Among the LMI population, about 60% are minorities, he said.
If there are racist jokes or an employee saying they’re proud to be white, they’re not going to have much of a case on free speech grounds because no one is punishing the employee for saying it. They’re just using it as evidence to bolster claims of discriminatory intent.
David E. Bernstein, professor at George Mason University School of Law
Thomas said regulators are searching for the digital-age equivalent of a smoking gun.
“They are checking emails, Instagram and text messages, looking across the board at all communications, period,” said Thomas. “It’s more than a smoking gun. It’s a gun with fingerprints and blood stains on it.”
Bernstein agreed, adding that the emails typically are used as supplementary evidence to get a bank or lender to agree to a settlement rather than have a case go to trial.
“Some of the emails may actually signal a racially charged environment where you wouldn’t really trust the people not to be discriminatory and some may just be from a few adolescent-types sending silly or stupid jokes that they really shouldn’t be sending, but either way it’s not gonna look good to a jury or the public,” he said. “If it ever got to a jury, the government says, ‘Look, here are these five emails that show the racist environment people are working in.’ That’s a very effective tactic.”
Since Attorney General Merrick Garland announced the Combat Redlining Initiative in 2021, the department has secured over $122 million from 12 banks and mortgage lenders to resolve redlining allegations. The Justice Department is working with its civil rights division and U.S. attorneys’ offices in coordination with the Office of the Comptroller of the Currency and the CFPB. Garland has said the DOJ has 25 redlining cases in its pipeline.
Garland has spoken about how lenders are breaking the law by redlining and he has put a priority on cracking down on lenders to redress past wrongs. He also has highlighted how the gap in homeownership rates is wider today than in the 1960s. The homeownership rate for whites currently is 74% compared with 45% for Blacks, a 29-point gap, according to the U.S. Census Bureau. In 1960, the homeownership rate was 65% for whites and 38% for Blacks, a 27-point gap.
The gap in homeownership is wider now than before the passage of the Fair Housing Act of 1968, which bans discrimination in home lending. That’s the law that the DOJ typically uses to bring discrimination cases against lenders. Additionally, the CFPB has jurisdiction over the Equal Credit Opportunity Act, which prohibits discrimination in any aspect of a credit transaction.
“Redlining remains a persistent form of discrimination that harms minority communities,” Garland said at a news conference in 2021, when the DOJ first announced its redlining initiative.
He also has stated that “redlining is a practice from a bygone era, runs contrary to the principles of equity and justice, and has no place in our economy today.”
Rice said that the increase in redlining cases suggests that lenders need more training in compliance management and fair lending.
“Every single year the federal regulatory agencies conduct fair lending training and HUD provides all kinds of training on best practices in fair housing to learn about what are the best practices and what you should and shouldn’t do,” she said.
Still, some experts have voiced concerns that incendiary emails have become a centerpiece of some fair lending investigations.
“Federal regulators have effectively investigated and pursued redlining claims for decades without the need for combing through emails and text messages that are entirely unrelated to lending and branching,” said Mitchell, the attorney for American Bank of Oklahoma.
She also suggests banks push back against claims that are false and inflammatory or that harm a bank’s reputation.
In the case of American Bank of Oklahoma, the Justice Department made a reference in a complaint filed with the courts to the 1921 Tulsa Race Massacre in which white rioters killed as many as 300 people, according to some accounts. The tragedy destroyed the city’s Black business district called the Greenwood District.
The $313 million-asset bank in Collinsville, Oklahoma, vehemently objected to any link between the current redlining allegations against it and the massacre given that the bank was founded in 1998 — nearly 80 years after the massacre occurred. A magistrate judge sided with the bank, and struck the two paragraphs from the complaint that mentioned the massacre. The rest of the order remained intact.
There also is a concern that the use of racist emails has the e ect of branding a company as racist even as settlement agreements require that lenders build relationships and extend credit in minority communities.
In the case of American Bank of Oklahoma, its settlement requires it to lend $1 million in Black and Hispanic communities in Tulsa.
“There’s obviously all sorts of unintended consequences,” said Bernstein, the law professor at George Mason University.
“It’s an interesting paradox. We’re going to announce you’re racist and said now go lend to people who we just told shouldn’t trust you. They’re making it much harder for these companies to lend and get people to borrow from them, or to recruit members of minority groups on their staff,” he added.
Jeff Greenberg | Universal Images Group | Getty Images
Sales of existing homes surged 9.5% in February from January to 4.38 million units, on a seasonally adjusted annualized basis, according to the National Association of Realtors. Housing analysts had been expecting a slight drop.
Sales were down 3.3% year over year, but it was the largest monthly gain since February 2023. Sales surged the most in the West, up 19.4%, and the South, up 16.4%. Sales in the Northeast were unchanged.
“Additional housing supply is helping to satisfy market demand,” said Lawrence Yun, NAR’s chief economist. “Housing demand has been on a steady rise due to population and job growth, though the actual timing of purchases will be determined by prevailing mortgage rates and wider inventory choices.”
Inventory rose 10.3% year over year to 1.07 million homes for sale at the end of February. That represents a still low 2.9-month supply at the current sales pace.
Higher demand continued to push the median price higher, up 5.7% from the year before to $384,500 — the eighth straight month of annual gains. Competition was stiff, with 20% of homes selling above list price.
The sales count is based on closings, so contracts likely signed in December and January, when the 30-year fixed mortgage rate dropped to the mid 6% range. It is now over 7%, according to Mortgage News Daily.
First-time buyers, however, did not surge with overall sales. They represented just 26% of buyers in February, down from 28% in January. Roughly 40% is the historical norm. All-cash sales were at 33%, up from 28% the year before.
“The stock market, maybe that is helping, or the record-high home prices. People from expensive states like California are going to more affordable markets like Florida or Georgia and paying all cash,” Yun said, adding that consumers may be accepting a “new normal” for mortgage rates.
Higher rates mean that consumers have to pay more to service their debt, but it also means that banks pay higher rewards to savers. It’s one of the silver linings to the current rate environment, said Ted Rossman, chief credit card analyst at Bankrate.
“There’s also been remarkable stability at the top of this market,” Rossman said. “The highest savings rate right now is 5.35%.”
That top rate is considerably higher than the national average for savings rates overall, which has been just below 0.6% for the past two months. But even that overall average is more than double its level of 0.23% 12 months ago.
Rossman added that plenty of high-yield savings accounts, mostly available online, are still paying close to or even above 5%. These kinds of accounts keep money easily accessible while earning solid returns and are great options for emergency savings.
Interest rates on savings accounts are higher than they’ve been in decades, but there has been recent softening in returns on certificates of deposit, data from the U.S. Federal Deposit Insurance Corp. shows.
The average yield on a 12-month certificate in March 2024 was 1.81%, down slightly from its high in December and January, according to the FDIC.
Despite the dip, CDs are good savings vehicles that avoid risk but still provide a return if you’re willing to tie up your money for a set period of time, Rossman said. The current environment will likely remain good for savers until the Federal Reserve initiates its rate cuts.
“There’s been remarkable stability at the top of this market, even though we expect cuts are coming,” he said. “These shorter-term rates don’t tend to move until the Fed moves.”
The flip side to the positive environment for savers is the expensive credit card market: Consumers carrying balances on their cards face historically high rates. The average credit card rate has been well above 20% for the past 12 months and will continue to stay there for some time, Rossman said.
“Sometimes rates bounce around a little bit if offers come on and off the market,” Rossman said, but “we’ve plateaued since that last rate hike as of late July.”
The key for consumers to remember is that credit card debt is expensive, and that will still be true even after the rate cutting starts, he said.
“The Fed is not going to come to your rescue on credit card rates,” Rossman said. “Even if rates fell a couple of points in a couple of years, they’d still be high.”
His best advice for consumers is to prioritize paying off credit card debt, if possible with the help of a balance transfer card, which lets consumers carry balances from one credit card to another for a low fee and an extended period of no or low interest.
The Fed is not going to come to your rescue on credit card rates.
Ted Rossman
Senior industry analyst, Bankrate
Rossman added the offers from balance transfer cards continue to be very favorable with low fees and generous repayment windows.
“The balance transfer market has been remarkably stable and strong,” he said. “It speaks to a strong job market and the strong economy. People are paying these bills back,” despite the fact that more consumers, on average, are carrying more expensive debt.
While savings and credit card rates are very sensitive to maneuvers from the Federal Reserve, the area that might see the most movement is housing.
“Unlike some of these other products, mortgage rates tend to move in advance of the Fed because they tend to track 10-year Treasurys,” Rossman said. “It’s more about investor expectations for the Fed and for economic growth.”
That’s reflected in the data. Mortgage rates peaked in October 2023 at about 8%, followed by a steady decline. And after a brief jump in February, they seem to be settling back to where they were at the beginning of 2024, when a 30-year fixed rate mortgage was about 6.6%.
“We think there’s a good chance that the average 30-year fixed rate mortgage could be around 6% by the end of the year,” Rossman said, which would be a much needed reprieve for a highly competitive housing market that is still undersupplied.
High mortgage rates have kept many sellers — who are locked into lower rates from years’ past — from putting their homes on the market. Lower rates could get them to list, Rossman said.
“The closer we get to 6% and then eventually into 5% territory, that gets some people off the fence and they list their home and then inventory improves,” he said. “Then that gives some some relief on the price side for would-be buyers.”
The National Association of Realtors agreed to a $418 million settlement last week in an antitrust lawsuit where a federal jury found the organization and several large real-estate brokerages had conspired to artificially inflate agent commissions on the sale and purchase of real estate.
The NAR’s multiple listing service, or MLS, used at a local level across areas in the U.S., facilitated the compensation rates for both a buyer’s and seller’s agents.
At the time of listing a property, the home seller negotiated with the listing agent what the compensation would be for a buyer’s agent, which appeared on the MLS. However, if a seller was unaware they could negotiate, they were typically locked into paying the listed brokerage fee.
The proposed settlement would have the commission offer completely removed from the NAR’s system and home sellers will no longer be responsible for paying or offering commission for both the buyer and seller agents, said real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida.
“The rule that has been the subject of litigation requires only that listing brokers communicate an offer of compensation,” the NAR wrote in a press release.
“Commissions remain negotiable, as they have been,” the organization wrote.
However, some of these changes may take time to materialize, experts say.
If a settlement agreement is accepted within a lawsuit between two people, the court generally won’t look at the settlement. Yet, in a federal class-action lawsuit, one that affects a large number of people, there will be a period for the court and interested parties to review the settlement and offer commentary and feedback on the agreement, Cobreiro said.
“That’s the process that we’re about to enter, and that process can take some time,” she said.
As proposed, the settlement would have the NAR completely remove commissions from its MLS system by July. That may be optimistic, Cobriero said.
“It would be more realistic to see this being implemented later this year,” she said.
In the meantime, it’s “business as usual” for buyers and sellers, Cobreiro said. “There is nothing that agents should be doing differently currently in their ongoing transactions.”
A buyer or seller already in the market is probably not going to be affected by the settlement unless their property happens to be on the market a little longer than what’s customary, she said.
“The big gray area here is how will buyer [agent] commissions be handled moving forward,” said Cobreiro, as there is no finalized agreement yet that clearly indicates how that will be handled.
The settlement agreement doesn’t say that the buyer’s agent will not be paid nor that the buyer’s agentcannot charge fees.
“The big question here is who is going to pay for those services moving forward. Will it ultimately be a buyer that will have to get the buyer’s agent’s commission together, on top of closing costs and on top of down payment?” Cobreiro said.
While commission fees are negotiable between involved parties, knowing what cards you have on the table as a homebuyer will be more important now than before. Using an agent will still be a smart way to achieve that, experts say.
“A great local agent can give you a competitive advantage,” said Amanda Pendleton, a home trends expert at Zillow Group. That’s especially true as low-priced starter homes are expected to remain in demand, she said.
Here are two things to know about how the settlement could change the process of buying a home:
1. Buyers could be responsible for their agent fees: Historically, real estate commissions typically come out of the seller’s pocket, and are split between the buyer’s and seller’s agents.
As a result of the settlement, the seller will no longer be responsible for commission fees for a buyer’s agent. So this is a new potential charge buyers need to consider in their budget. Historically, if a buyer’s agent got half of a 5% or 6% commission, that equaled thousands of dollars.
For example: The median home sale price by the end of 2023 was $417,700, according to the Federal Reserve. That would mean commissions at a 5.37% rate — the 2023 average rate, according to Lending Tree —amount to roughly $22,430, about $11,215 of which might go to the buyer’s agent.
But bypassing an agent’s services may not lead to direct savings, especially for first-time buyers, experts say. You could put yourself at risk by leaving the homebuying process entirely to the seller and their agent, said Cobreiro.
Sometimes things show up in your home inspection report that merit a credit from the seller, but if you don’t have an agent, the seller’s agent may not volunteer that, said Cobreiro.
Doing so would be a breach of their fiduciary duty to the seller, and it affects their commission if the price of the property declines, she said.
“Signing the contract is the least of it; there’s so many things that happen throughout the transaction that really require the expertise and the navigation by someone who understands the process,” she said.
2. Buyers may be required to sign a contract early on: If buyers become responsible for their agent’s commission, you’re likely to see more agents asking buyers to sign a buyer-broker agreement upfront, before the agent starts helping them find a property.
Most brokerages have a buyer agency agreement, but it’s common for real estate agents to wait to present the contract.
“They want to win the person’s business, they don’t want to scare them with having to sign any contracts,” said Steven Nicastro, a former real estate agent who writes for Clever Real Estate.
Moving the contract talks to earlier in the process is a precaution to protect buyer’s agents in the market.
“That could lead to negotiations actually taking place at the first meeting between a buyer and the buyer’s agent,” Nicastro said.
Know you can negotiate the commission rate as well as the duration of the contract, which can span from three months to a year, Cobreiro said.
Overall, expectations that the Fed is pulling off a soft landing have increased, but that offers little consolation for Americans with high-interest debt.
And now there may be fewer interest rate cuts on the horizon after hotter-than-expected inflation reports sent the message that “we are moving in the right direction, but we’re not there yet,” said Greg McBride, chief financial analyst at Bankrate.com.
For consumers, that means “a very slow downward drift in savings rates but no material change in borrowing costs for credit cards, auto loans or home equity lines of credit,” McBride said.
Inflation has been a persistent problem since the Covid-19 pandemic, when price increases soared to their highest levels since the early 1980s. The Fed responded with a series of interest rate hikes that took its benchmark rate to its highest level in more than 22 years.
The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
The spike in interest rates caused most consumer borrowing costs to skyrocket, putting many households under pressure.
Even with some rate cuts on the horizon later this year, consumers won’t see their borrowing costs come down significantly, according to Columbia Business School economics professor Brett House.
“The costs of borrowing will remain relatively tight in real terms as inflation pressures continue to ease gradually,” he said.
From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at where those rates could go in 2024.
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.
Annual percentage rates will start to come down when the Fed cuts rates, but even then they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, according to Ted Rossman, Bankrate’s senior industry analyst.
“If the average credit card rate falls a percentage point from its current record high of 20.75%, most cardholders would barely notice,” he said.
Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
But rates are already lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is near 7%. That’s up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.
Doug Duncan, chief economist at Fannie Mae, expects mortgage rates will end the year at 6.4%, but that won’t provide much of a boost for would-be homebuyers.
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” Duncan said. “The problem is still supply. If rates come down and it ramps up demand and there’s no supply, the only thing that happens is that home prices go up.”
Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments.
The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.
Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.
While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.
As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up an emergency savings account, McBride said.
Since those rates have likely maxed out, this is the time to lock in certificates of deposit, especially maturities longer than one year, he said. “There’s no incentive to hold out for something better because that’s not the way the wind is blowing.”
Currently, one-year CDs are averaging 1.73%, but top-yielding CD rates pay over 5%, as good as or better than a high-yield savings account.
Economists expect the Federal Reserve to leave interest rates unchanged at the end of its two-day meeting this week, even though many experts anticipate the central bank is preparing to start cutting rates in the months ahead.
In prepared remarks earlier this month,Federal Reserve Chair Jerome Powell said policymakers don’t want to ease up too quickly.
Powell noted that lowering rates rapidly risks losing the battle against inflation and likely having to raise rates further, while waiting too long poses danger to economic growth.
But in the meantime, consumers won’t see much relief from sky-high borrowing costs.
In 2022 and the first half of 2023, the Fed raised rates 11 times, causing consumer borrowing rates to skyrocket while inflation remained elevated, and putting households under pressure.
With the combination of sustained inflation and higher interest rates, “many consumers are experiencing higher levels of economic stress compared to one year ago,” said Silvio Tavares, CEO of credit scoring company VantageScore.
The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
Even once the central bank does cut rates — which some now expect could happen in June — the pace that they trim is going to be much slower than the pace at which they hiked, according to Greg McBride, chief financial analyst at Bankrate.
“Interest rates took the elevator going up; they are going to take the stairs coming down,” he said.
Here’s a breakdown of where consumer rates stand now and where they may be headed:
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to nearly 21% today — an all-time high.
Annual percentage rates will start to come down when the Fed cuts rates but even then, they will only ease off extremely high levels. With only a few potential quarter-point cuts on deck, APRs would still be around 20% by the end of 2024, McBride said.
“If the Fed cuts rates twice by a quarter point, your credit card rate will fall by half a percent,” he said.
Fifteen- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy. But anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
Rates are already significantly lower since hitting 8% in October. Now, the average rate for a 30-year, fixed-rate mortgage is around 7%, up from 4.4% when the Fed started raising rates in March 2022 and 3.27% at the end of 2021, according to Bankrate.
“Despite the recent dip, mortgage rates remain high as the market contends with the pressure of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist. “In this environment, there is a good possibility that rates will stay higher for a longer period of time.”
“The reality of it is, a lot of borrowers are paying double-digit interest rates on those right now,” McBride said. “That is not a low cost of borrowing and that’s not going to change.”
Even though auto loans are fixed, payments are getting bigger because car prices have been rising along with the interest rates on new loans, resulting in less affordable monthly payments.
The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, competition between lenders and more incentives in the market have started to take some of the edge off the cost of buying a car lately, said Ivan Drury, Edmunds’ director of insights.
Once the Fed cuts rates, “that gives people a little more breathing room,” Drury said. “Last year was ugly all around. At least there’s an upside this year.”
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
Private loan borrowers have fewer options for relief — although some could consider refinancing once rates start to come down, and those with better credit may already qualify for a lower rate.
While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.
As a result, top-yielding online savings account rates have made significant moves and are now paying more than 5% — above the rate of inflation, which is a rare win for anyone building up an emergency savings account, McBride said.
Since those rates have likely maxed out, this is the time to lock in certificates of deposit, especially maturities longer than one year, he advised. “There’s no incentive to hold out for something better because that’s not the way the wind is blowing.”
Currently, one-year CDs are averaging 1.73% but top-yielding CD rates pay over 5%, as good or better than a high-yield savings account.
President Joe Biden has floated plans to address the country’s affordable housing issues, including new tax breaks for first-time homebuyers and “starter home” sellers. However, experts have mixed opinions on the proposals.
“I know the cost of housing is so important to you,” Biden said during his State of the Union speech Thursday night.
“If inflation keeps coming down, mortgage rates will come down as well. But I’m not waiting,” he said.
Biden has proposed a “mortgage relief credit” of $5,000 per year for two years for middle-class, first-time homebuyers, which would be equivalent to lowering the mortgage interest rate for a median-price home by 1.5 percentage points for two years, according to an outline released by the White House on Thursday.
The administration is also calling for a one-year credit of up to $10,000 for middle-class families who sell their “starter homes” to another owner-occupant. They define starter homes as properties below the median price for the seller’s county.
U.S. President Joe Biden delivers the State of the Union address in the House Chamber of the U.S. Capitol in Washington, D.C., on March 7, 2024.
Pool | Getty Images News | Getty Images
“Many homeowners have lower rates on their mortgages than current rates,” the White House said. “This ‘lock-in’ effect makes homeowners more reluctant to sell and give up that low rate, even in circumstances where their current homes no longer fit their household needs.”
However, it’s difficult to predict whether Biden’s proposal will progress during a presidential election year, especially with a split Congress, experts say.
In 2023, those making the median U.S. income of $78,642 would have spent 41.4% of earnings by purchasing a median-price home at $408,806, up from 38.7% in 2022, the report found.
While rates have fallen from 2023 peaks, the average interest rate for 30-year fixed-rate mortgages was still hovering around 7%, as of March 7.
“We’re close to multidecade highs for mortgage rates,”said Keith Gumbinger, vice president of mortgage website HSH.
“Unless [Biden’s proposed credit] counts as qualifiable income, it’s not going to actually make it easier for homebuyers to qualify for mortgages,” he said.
Of course, higher mortgage interest rates are only one piece of the country’s affordable housing puzzle.
“The housing supply crisis has been building, really, since the Great Recession,” said Janneke Ratcliffe, vice president for housing finance policy and leader of the Housing Finance Policy Center at the Urban Institute.
The housing supply crisis has been building, really, since the Great Recession.
Janneke Ratcliffe
Vice president for housing finance policy at the Urban Institute
Since the economic crisis, there has been a “perfect storm” of issues for the country’s housing supply, including declines in new home construction, she said.
“What we don’t need today in the market is more demand,” said Gumbinger. “We have plenty of demand, but we don’t have adequate supply.”
Still, Ratcliffe said she was pleased to see housing affordability highlighted during the State of the Union speech. “I think this is a great starting point,” she said.
The youngest of three and the daughter of Indian immigrants, Pier set her sights on Wall Street after graduating from Princeton University in 2003. She began her career at JPMorgan as a credit trader, a field that doesn’t have a lot of women.
“In the ladies room, I don’t bump into a lot of people,” said Pier, who moved from New York to California in 2013 to join Pimco.
Fortunately, she’s seen a lot of changes over the years. There has not only been some progress for women entering the financial business, but the culture has also changed since the financial crisis to become more inclusive, she said. Plus, it’s an industry where there is clear evidence of performance, she added.
“There’s accountability,” she said, in a recent interview. “Therefore, the gender role starts to break down a little bit. With responsibility and accountability and a number to your name, it’s very clear what your contributions are.”
Pier has risen through the ranks since joining Pimco and is now a portfolio manager within the firm’s multi-sector credit business. The 42-year-old mother of two credits mentors for helping her along the way, as well as her husband for supporting her and moving to California sight unseen. Her father also raised her to value education and hard work, Pier said.
“He was the quintessential example of the American dream,” she said. “Being able to see his hard work and a lot of progress meant that I never thought otherwise, that hard work wouldn’t lead to progress.”
Pier’s work has not gone unnoticed. Morningstar crowned her the winner of the 2021 U.S. Morningstar Award for Investing Excellence in the Rising Talent category.
“Pier’s cautious contrarianism and rising influence at one of the industry’s premier and most internally competitive fixed-income asset-management firms stands out,” Morningstar said at the time.
Pier is the lead manager on Pimco’s Diversified Income Fund, which was among the top performers in its class — ranking in the 13th percentile on a total return basis in 2023, according to Morningstar. It has a 30-day SEC yield of 5.91%, as of Jan. 31.
“We’re really broadly canvassing the global landscape, and then looking for where there’s the best opportunities,” Pier said. “It’s getting the interest rate sensitivity from investment grade, high-quality parts of EM [emerging markets], and the equity-like sensitivity from high yield and the low-quality parts of EM.”
The fund also invests in securitized assets, with about 23% of the portfolio is allocated to the sector, as of Jan. 31.
Pimco Income Diversified Fund
While the fund has a benchmark, the Bloomberg Global Credit Hedged USD Index, it is “benchmark aware” and doesn’t “hug it,” Pier said.
Morningstar has called the fund a “standout.”
“Pimco Diversified Income’s still ample staffing, deep analytical resources, and proven approach make it a top choice for higher-yielding credit exposure,” Morningstar senior analyst Mike Mulach wrote in January.
It hasn’t always been smooth sailing. The fund has more international holdings and a more credit-risk-heavy profile than its peers, which has sometimes “knocked the portfolio off course,” like it did in 2022 during the Russia-Ukraine conflict, Mulach said. Still, he likes it over the long term.
So far this year, the fund is relatively flat on a total return basis.
In addition to also leading PDIIX, Pier is also a manager on a number of other funds, including the PIMCO Multisector Bond Active ETF (PYLD), which was launched in June 2023. It currently has a 30-day SEC yield of 5.12%, as of Tuesday, and an adjusted expense ratio of 0.55%.
Multisector Bond Active Exchange-Traded Fund performance since its June 21, 2023 inception.
“It’s maximizing for yield, while looking for capital appreciation, and obviously, with the same Pimco principles of wanting to keep up on the upside, but manage that downside risk,” she said.
Right now, Pier prefers developed markets over emerging markets and the U.S. over Europe.
Within investment-grade corporate, she likes financials over non-financials. Credit spreads have widened in financials over the concerns about regional banks, she said.
“Maybe some of it’s warranted for the fact that they need to issue significant supply year after year, but we think that the metrics of, say, the big six … look quite resilient on a relative basis,” Pier said.
Within corporate credit, the team looks at the “full flexibility of the toolkit,” she noted. That could include derivatives and cash bonds, she added.
“Are we looking at the euro bond or the dollar bond in the same structure? The front end or the long end? Cash versus derivatives? However we can most efficiently express our view and trade that will lead to the best total return,” Pier said.
She also likes securitized assets, which she said can be a lot more resilient during a downturn. One of Pier’s preferences is the legacy non-agency mortgage-backed securities market.
“We have the data on how long they’ve been in the home, how much home equity has been built, what their mortgage rate is, what’s been their alacrity to pay, so we can see — is there any delinquency?” she said. “We have a lot of data there and a lot of comfort around that asset class.”
Agency mortgage-backed securities are also attractive and could be a good substitution for single-A rated corporate debt, she said.
About 60% of homeowners have a mortgage rate below 4%, according to a Redfin analysis of data from the Federal Housing Finance Agency’s National Mortgage Database.
“It’s more liquid, implicitly guaranteed by the government and it’s a pretty similar spread,” she said.
Pier finds the work exciting and encourages women to join her in the business.
“Anyone can excel who wants to really put in the work and wants to bet on themselves,” she said.
Spring hasn’t officially sprung yet, but the spring housing market already appears to be on the move despite stubbornly higher mortgage rates.
Mortgage applications to purchase a home increased 11% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was still 8% lower than the same week one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 7.02% from 7.04%, with points unchanged at 0.67 (including the origination fee) for loans with a 20% down payment.
“Of note, purchase volume – particularly for FHA loans – was up strongly, again showing how sensitive the first-time homebuyer segment is to relatively small changes in the direction of rates,” said Mike Fratantoni, senior vice president and chief economist at the MBA. “Other sources of housing data are showing increases in new listings, which is a real positive for the spring buying season given the lack of for-sale inventory.”
There were 14.8% more homes actively for sale in February compared with the same time last year, according to Realtor.com. Notably, homes priced in the $200,000 to $350,000 range grew by 25% from a year ago, outpacing all other price categories.
“The first couple of months of 2024 have proven to be positive for inventory levels, as the number of homes actively for sale was at its highest level since 2020,” said Danielle Hale, chief economist for Realtor.com, who noted that while supply is still well below pre-pandemic levels, the South, where homes are less expensive, is leading the charge.
Applications to refinance a home loan increased 8% for the week and were 2% lower than the same week one year ago. The rise has less to do with the small drop in rates and is more likely due to the number being so low that any weekly move in either direction is outsized in the percentage change. There are very few borrowers today with rates that are high enough to benefit from a refinance.
When you buy or sell a home, your real estate agent’s commissions can trim thousands of dollars off the sale price — but many consumers don’t realize you can negotiate those terms.
Nearly a third, 31%, of homebuyers and sellers negotiated commissions with their agents, according to a new report by LendingTree. A majority of those, 64%, successfully reduced the fees. LendingTree polled 2,034 U.S. adults in mid-January.
About 36% of homebuyers and sellers say they didn’t know they could negotiate a real estate agent’s commission.
That’s understandable: When buyers are budgeting costs for a new property, they often focus on the bigger things, like the down payment and the mortgage, said Jacob Channel, a senior economist at LendingTree.
“Real estate commission fees are one of the sort of less glamorous or less talked out parts of the homebuying process,” said Channel.
“Thoughts like how much a real estate agent’s going to get paid or who pays the real estate agent probably aren’t at the forefront of your mind,” he said.
In 2023, the average commission was 5.37%, LendingTree found. Rates typically range from 5% to 6%, translating to thousands of dollars and the earnings are usually split evenly between the buyer and seller agents involved with the transaction. The seller typically pays those commissions at closing.
The median home sale price by the end of 2023 was $417,700, according to the Federal Reserve. That would mean commissions at a 5.37% rate amount to $22,430.49.
Yet 48% of homebuyers and sellers didn’t know how much their agent received in commission for their latest home transaction, according to LendingTree.
“The homebuying and selling experience can be so overwhelming,” said Channel. “Unless you’re paying close attention, it’s kind of hard to come up with an itemized list of what exactly you spent and where exactly you spent it.”
Some home sellers avoid these fees entirely by selling the home on their own. So-called for sale by owner homes represented 10% of home sales in 2021, according to the National Association of Realtors.
Technology has made it easier for Americans to buy and sell properties on their own through online marketplaces. But they may end up putting in more time and energy than they initially anticipate or make the process even more complicated, Channel said.
“[Real estate agents] are doing a lot of work behind the scenes that isn’t necessarily [or] immediately apparent to sellers and buyers,” he said.
Agents are often familiar with local housing market trends, know how to sell a property for a higher price and are familiar with the necessary paperwork involved in the transaction, said Channel.
“All housing markets have their own individual quirks,” he said. “If you’re a seller and you try to do it on your own, you might miss something or … not position yourself in a particularly strong way to get a good deal to sell your house for as much as you could.”
While real estate agents must be upfront with their fees, buyers and sellers should make sure to ask questions about what they are charging and why. An agent’s rate often depends on factors like the property type and how easily they think it will sell.
Keep in mind that agents’ “livelihoods depend on the commission fees that they make,” said Channel.
If you find an agent you like but worry about the cost, see if you can come to an agreement or reach a discount. You may have more leverage to negotiate if your home is desirable, has a high value or if your local market is hot.
Look into different agents in your area and compare their fees. So-called low-commission agents may offer fewer services, but charge commissions as low as 1% to 1.5%. Others work on a flat-fee basis.
If you’re working with a dual agent, or a real estate agent who’s representing both the buyer and seller, you might point out to them that they don’t have to split the commission with anyone. Even with a slightly lower rate, they’re more likely to take home more money if they had split 5% with a second agent, said Channel.
As of now, the home seller is responsible for paying both their agent and the buyer’s. But that could change if a lawsuit stands.
In an antitrust lawsuit last fall, a federal jury found the NAR and several large real estate brokerages had conspired to artificially inflate agent commissions. As a result, the NAR, Keller Williams and HomeServices of America are liable for nearly $1.8 billion in damages. Re/Max and Anywhere Real Estate settled before the trial, each paying damages.
“Last month, NAR filed motions asking the Court to set aside the trial verdict and enter judgment as a matter of law in favor of NAR or, at the very least, order a new trial. These motions are part of the post-trial process, and we expect rulings on them in due course,” a spokesperson from NAR told CNBC in a statement.
A spokesperson on behalf of HomeServices of America declined to comment.
Keller Williams settled for $70 million in early February.
If the verdict stands, it could mean that a home seller won’t be required to pay the buyer’s agent, experts say. More buyers may bypass agents, or try to negotiate fees.
“Hopefully, this will give us even more transparency,” said Channel. “This goes to show … why it’s so important to pay attention to all the costs when you go to buy or sell a home.”
Several factors may affect your path toward homeownership â one may be your parents.
“If your parents are homeowners, you’re more likely to be a homeowner,” said Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania.
The tendency follows a broader underlying phenomenon or “an intergenerational transmission of status,” said Dowell Myers, a professor at the University of Southern California’s Sol Price School of Public Policy.
“If your parents are more educated, you’re more educated. If a parent’s more educated and they have more money, then you have more money,” said Myers, whose research focuses on linking demographic data with housing trends.
In 2023, about 23% of first-time buyers used a gift or a loan from friends or family for the down payment of their house, according to the National Association of Realtors.
Separately, Zillow’s chief economist Skylar Olsen said in August on CNBC’s “Last Call” that 40% of first-time homebuyers source money “from the bank of mom and dad” to make their down payments, up from one-third pre-pandemic.
“Some of that is hard-won savings,” she said. “The other part is, say, a gift from family and friends.”
“Intergenerational wealth is clearly associated with homeownership,” said Wachter. If a parent is a homeowner, they are more likely to assist with their kid’s down payment, she said.
In fact, a young adult’s homeownership rate increases with household income and the effect is compounded with the parent’s homeownership status, according to a 2018 report by the Urban Institute, an economic and social policy think tank based in Washington, D.C.
If your parent is not a homeowner, “then you are less likely to have intergenerational wealth or transferred gifts from your parent for a down payment, which has become quite important as down payments have increased,” she said.
Myers agreed: “As prices rise, down payments have to get bigger. No one can save up $100,000; that’s just not realistic.”
Nearly a third, 31%, of adult Gen Zers, or those born in 1996 or later, live at homewith their parents or a family member because they can’t afford to buy or rent their own place, a report by Intuit Credit Karma found.
The lack of affordable housing options is pushing young adults to live with their parents, and multigenerational living can help young people build savings to become homeowners, Wachter said.
But it’s harder for those with parents who are not homeowners: “Renter households are often precluded from bringing more people into their home. As a homeowner, you have more space, flexibility; you’re able to do so,” she said. “There’s this intergenerational propensity to be renters.”
Young adults with homeowner parents are more likely to become homeowners themselves because they can obtain more information about the mortgage application process directly from their parents, the Urban Institute found.
“Because the parents are so knowledgeable about homeownership, they’re more likely to encourage their kids to do it and show them how to do it,” Myers said. “It’s like a 5 percentage point bonus by having parents who are homeowners.”
Renter parents may express more “sour grapes” about the idea of owning a home, he said: “If they didn’t do it, they’re not going to talk it up.”
Cultural factors during someone’s upbringing can also influence their potential home buying and renting activity. “It’s a valid component,” Myers said.
If a young adult grew up with homeowner parents, they are more motivated to achieve the same status because they know the benefits firsthand.
While homeownership is out of reach for many Black Americans, most still see it as a hallmark of success.
About 66% of Black Americans consider themselves successful in some way, according to a recent study by the Pew Research Center. Slightly more than half of those surveyed, 52%, believe homeownership is important for their definition of success.
Meanwhile, 82% said they feel the most successful when they can provide for their families, according to Pew, which surveyed 4,736 Black adults in the U.S. between Sept. 12 and Sept. 24.
Those two markers of success can be at odds. While homeownership is known to be a path to build wealth, a mortgage payment and other housing-related expenses can cause financial strain, leaving you with little to spend on other expenses or save toward your goals.
“Being ‘house poor’ doesn’t do much for you,” said Preston D. Cherry, a certified financial planner and the founder and president of Concurrent Financial Planning in Green Bay, Wisconsin.
“Homeownership has a lot more expenses than renting: taxes, insurance, maintenance, down payment. All these factors need to be considered,” said Cherry, a member of CNBC’s Financial Advisor Council.Â
Outside of the mortgage, property taxes and insurance costs, utility and maintenance costs also tend to be higher in a house than an apartment, Kamila Elliott, a CFP, co-founder and CEO of Collective Wealth Partners in Atlanta, previously told CNBC. Before you close the deal on a house, it’s important to have good estimates of those costs to anticipate what your realistic budget would look like.
“Understand what it is to be a homeowner and how things work,” said Elliott, who is also a member of CNBC’s Financial Advisor Council.
Owning a home might also leave you without enough money to fund other financial goals, such as paying down debt, providing for additional family members or saving for retirement, Cherry said.
In some markets, renting can be the smarter financial choice, says Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania.Â
“The cost of homeownership versus renting has been [making it] daunting to become a homeowner. It’s less expensive to be a renter in most markets in the U.S.,” Wachter said.
If you’re looking to provide for your family and can do that by renting as opposed to owning, “then that’s the way forward,” she said.
Give yourself grace. Homeownership will be there for you when you’re ready.
When you compare upfront costs, renting is likely to be less expensive than buying a house. A rental unit’s security deposit and a potential broker’s fee are likely to be a lot less money compared to a down payment, said Jacob Channel, a senior economist at LendingTree.
Therefore, remember “there’s nothing wrong with being a renter,” and there are millionaires in the U.S. who could afford a house but still choose to rent, he said.
“At the end of the day, what good is being a homeowner when you can’t provide basic necessities for yourself and your loved ones?” he said.
While homeownership can create wealth over the long term, it’s not always the case. “Can you build wealth without homeownership? Yes. Rent and invest the difference,” Cherry said.
By being financially flexible, you may be able to accomplish and address more goals than being able to fund one goal, he said.
“Give yourself grace. Homeownership will be there for you when you’re ready,” Cherry said.
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