Are you in the market for a new home? Maybe it’s time to take a more proactive approach and start reaching out to potential sellers.
Having worked in the real estate industry for 37 years, I’ve witnessed this situation before. When mortgage rates are high and cash reserves are dwindling, homebuyers, equity borrowers, and brokers all struggle to close deals.
Many self-employed borrowers are being rejected for home equity lines of credit by banks due to their declining income over the past year. It’s a tough situation for them.
The U.S. personal savings rate is currently 4.6%, almost half of its long-term average, according to the Bureau of Economic Analysis. Additionally, household debt has risen to $17.05 trillion in the first quarter of 2023, as reported by the New York Fed.
Yesterday, the Wall Street prime borrowing rate increased to 8.5%, reaching levels not seen in over two decades.
So, what can borrowers do in these circumstances?
Real estate agents often turn to people like me because we offer alternative mortgage options that are typically more expensive than those offered by banks. Another option for property owners is to seek hard money loans to unlock cash from their investments, though these loans often come at high interest rates and origination charges.
While researching, I found a low rate of 6.24% for a home equity line of credit on Bankrate’s website. Wholesale mortgage lender FundLoans offers closed-end second mortgages ranging from 9.5% to 14.375% on its rate sheet.
Jon Maddux, CEO and co-founder of FundLoans, explains that second mortgages often fall within the average range of 9.75% to 10.99%. While this is still higher than credit card or hard money loans, these mortgages offer interest-only payments and are fixed for 30 years.
As a full disclosure, my firm Mortgage Grader is a client of FundLoans.
The current housing debate revolves around the high cost of borrowing and how it affects families and industry professionals. Many of us in the mortgage industry are struggling alongside real estate agents, and the past 18 months have been challenging. It’s important to note that any mortgage worker claiming otherwise is not being truthful.
Certain groups of workers, such as unionized entertainment industry workers and tech workers, are particularly impacted. Unionized entertainment industry workers may consider selling their homes due to the ongoing strike caused by disputes over AI. For tech workers, the job market is highly competitive, with hundreds of applicants for each job posting.
The actions taken by Federal Reserve Chairman Jerome Powell to raise short-term rates are likely to result in more job losses, further impacting the housing market.
So, is inflation slowing down? Are rates peaking? Let’s turn to the experts to find out.
Jordan Levine, chief economist for the California Association of Realtors, suggests that mortgage rates could reach 7.5% by the end of the year. Revolving debt has increased by 15%, equivalent to $150-$160 billion in added credit card debt since the pandemic. Savings rates have dropped significantly.
CAR predicts that home prices in Southern California will be 5%-6% lower this year. Levine also expects mortgage rates to drop to the 5%-6% range by the end of 2024.
According to Raymond Sfeir, director of economic research at Chapman University’s Anderson Center for Economic Research, employment is expected to decline. The number of hours worked has already decreased, and the total number of employed individuals is projected to lower. This will result in a mild slowdown and a mild recession in the first half of next year once government support diminishes.
Sfeir predicts mortgage rates to reach 7% by the end of this year and home prices to be 5%-6% below last year’s numbers.
On the other hand, Mark Zandi, chief economist at Moody’s Analytics, believes a recession can be avoided. Inflation is moderating, and mortgage rates are expected to remain at a steady 6.5% through 2024. Zandi expects home prices to drop by 7% to 8% from peak to trough between June 2022 and June 2025 to make housing more affordable.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, notes that while the market for new home sales has improved, overall housing market activity remains slow. Affordability challenges and low inventory are among the factors deterring potential buyers. Once the Federal Open Market Committee signals that rates have peaked, mortgage rates are expected to trend downwards.
In my opinion, the inventory of homes for sale will be 20%-25% higher next year compared to this year due to job and earnings losses. I anticipate mortgage rates to reach 7.25% by the end of this year, falling to 5.75% by the end of 2024.
In terms of mortgage rates, the 30-year fixed rate is currently at 6.81%, three basis points higher than the previous week. The 15-year fixed rate stands at 6.11%, five basis points higher than the previous week.
Lastly, well-qualified borrowers in the local area have access to different fixed-rate mortgages, such as a 30-year FHA at 6%, a 15-year conventional at 6%, and a 30-year conventional at 6.5%.
It’s worth mentioning that the 30-year FHA conforming loan has certain limitations depending on the value of the property.
In conclusion, the current state of the housing market is challenging for both borrowers and industry professionals. With high mortgage rates and declining income, finding affordable options can be difficult. However, seeking alternative mortgage options and staying informed about market trends can help make the best decisions.
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