As of Thursday, the mortgage market is witnessing a significant surge in rates, with both 30-year and 15-year fixed-rate mortgages (FRM) averaging at 7.49 percent and 6.78 percent respectively, marking a 22-year peak in the 30-year FRM. Freddie Mac's Chief Economist, Sam Khater, linked this increase to various factors including the rising 10-year Treasury yield and ongoing economic uncertainties such as the Federal Reserve's impending decisions.
Simultaneously, homebuyer demand has experienced a downturn. According to the National Association of Realtors (NAR), existing-home sales have been on a downward trend for seven straight months. This dip in demand is compounded by a limited inventory of unsold homes and escalating median home prices, which have surpassed the $400,000 mark for three consecutive months.
In response to these developments, NAR's chief economist Lawrence Yun has suggested potential buyers consider renting until mortgage rates stabilize.
Freddie Mac, also known as Federal Home Loan Mortgage Corporation (FHLMC), has been at the heart of these fluctuations. According to InvestingPro data, the company's market cap is currently at 1750M USD, with a P/E ratio of 75. Interestingly, the company has seen a large price uptick over the last six months with a 38.5% total return, as well as a strong return over the last three months of 28.64%. This is despite a declining trend in earnings per share, as pointed out in the InvestingPro Tips.
These events underscore Freddie Mac’s mission since its inception in 1970 to foster liquidity, stability, affordability, and equity in the housing market for tens of millions of families. The organization remains committed to borrowers who can make a 20 percent down payment and have excellent credit ratings. Notably, the company has high earnings quality, with free cash flow exceeding net income, and liquid assets that exceed short term obligations, as highlighted by InvestingPro Tips.
The current situation in the housing market is influenced by multiple triggers such as fluctuations in inflation, changes in the job market, and uncertainty regarding future actions from the Federal Reserve. As these factors continue to evolve, their impact on mortgage rates and consequently on homebuyer behavior will remain a key focus for industry observers. For more insights like these, check out InvestingPro, which offers an additional 11 valuable tips for potential investors in Freddie Mac.
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