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It's been an eventful week in the housing market. The latest CPI data showing the shelter index increasing 0.4% and mortgage applications surging to 16.8% in the most recent week. Here to help us break down what this means for the housing market, we're bringing in Jeff Taylor, founder of Emphasis Digital Risk. Jeff, I want to start with those mortgage applications from this morning. We saw a big jump there and correct me if I'm wrong, but reading through the data, it seemed like it was largely from a jump in refinancing, not necessarily people applying for new mortgages. I'm I'm curious what the overall read is there as mortgage rates come down. Is this a trend? Do you think it's going to continue? And is it going to be dominated by refis for a little while?

Josh, thank you so much for having me today. And yes, you know, what we saw in the refinance market was the biggest one week jump in almost two years. And if we look at the broader rate market right now, we're down on full point to 6.5 down from our high in April of 2024. And as the Fed has talked about over the course of the last couple of weeks, we're looking at potentially one to two rate cuts this year, maybe September, maybe December, maybe a total of 75 basis points. So for the first time in over two and a half years, I think that we're really starting to hit a spot here in a period of time where interest rates are going to come back down coupled with affordability getting a little bit better, right? Home price appreciation was 6.1% back in February. It's now 4.1% this year. Those things coming together are really going to shake up for what could be a good housing market in the rest of this year and in the spring buying season.

Jeff, what is the magic number? You know, when you look at historical trends at times when mortgage rates have been high, I mean, mortgage rates have not come down very much this cycle around, but if you're starting from such a high point, what do we typically see is that sort of like, is it a percentage point drop, or what are people waiting for?

That's a great question. And so we recently just completed our annual US market housing survey here at Digital Risk Emphasis. And what we found was that 48% say that if they get interest at 5%, right, they're ready to start buying. And these people have been on the sideline for a couple of years. Another 20% say their sweet spot is a little bit higher in the sixes. So that's a big number. So I think a lot of people, at from our survey, have been saying that really, if we get back into the fives, we really could see an increase, especially as we head into the spring the spring buying season of 2025.

Jeff, you mentioned the Fed and the role it plays here with rates coming lower, and we know markets are already expecting rates to come lower, right? And that sort of I think what's been bringing mortgage rates down to some extent already. So how does that work once they start cutting? Like is it priced in pre-cut and the cut doesn't make that much of a difference or we're going to see mortgage rates start to really fall once that cut starts?

You know, that's a really great point. Not everybody knows this. So what you have basically is the spread that is shrinking in anticipation of the Fed cutting rates. So the mortgage rates will actually move as the mortgage MBS market does, and it will start to settle down a little bit. But where you'll see your permanent rate cuts will be obviously when the Fed moves. But the market always moves ahead. And that's where I think if you look at September through December of this year, you know, you could probably see triple the amount of refinance volume as you have in the previous two years on a monthly basis because ahead of the Fed, the markets will move. The MBS and mortgage rates will come down, and you could see something, you know, probably close to 6.1, 6.2 by the end of the year, heading into the fives in January, February.

Jeff, even if we see mortgage rates start to come down and unlock some demand in the housing market, does that mean affordability is going to improve because if I look at shelter costs, for example, in the CPI report today, I'm not terribly encouraged.

So, you know, if I look at housing, right, it's been such a tight market for the last few years, but this is the best inventory we've had since 2017, 2019. And so a couple data points on that, in one of five major housing markets, they're actually housing surpluses. So like Tampa, Austin, Sacramento, you're starting to see houses that are on the market versus everything being bid up at ask or more was what we had been dealing with for a period of time. The other thing that really factors in to affordability though is insurance, and that's the thing where you look at like the state of Florida, insurance costs have doubled in many instances, and that's a big driver to the overall housing number that people can afford. So those are the things that you're looking at, and those are the things to take into consideration. But again, with more inventory, that's going to be better. The insurance, I think, really is the wild card that we'll be talking a lot about in 2025.

Jeff Taylor, thank you. Appreciate it.

Thank you so much for having me.