The housing market is seeing a slowdown as homebuyers take a break, primarily due to rising interest rates. According to Freddie Mac’s weekly lender survey on October 5th, the average 30-year fixed rate stands at 7.49%, the highest it has been since December 2000.
The Bureau of Labor Statistics added to this news the following day, revealing that the U.S. had gained an impressive 336,000 jobs in September, which is 69,000 more than the 12-month moving average.
Also see: Mortgage rates hit 23-year high as Fed plays ‘Grinch’
With this surge in job growth, it is highly likely that the Federal Reserve will increase rates by half a percentage point before the end of the year. I believe the prime rate will reach 9% by the end of 2023, and 30-year fixed mortgage rates will surpass 8%.
Considering the current interest rate of 7.49%, a 30-year fixed mortgage for a $600,000 property would require a monthly payment of $4,191. This is a significant increase compared to the all-time low Freddie rate of 2.65% in January 2021, which would have resulted in a payment of $2,418.
More from Lazerson: Is relief in sight for priced-out homebuyers? Don’t hold your breath
Mortgage borrowing costs for well-qualified borrowers have risen by 73% in just over two and a half years.
Unsurprisingly, this surge in mortgage rates has severely impacted the mortgage business. “Mortgage applications have come to a standstill, dropping to the lowest level since 1996,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association. “The purchase market has slowed down to its lowest level of activity since 1995 as the rapid rise in rates has pushed many potential homebuyers out of the market.”
Also see: Yield surge helps Fed on inflation but puts housing, lending at risk
To gain a better understanding of the situation, I reached out to some industry peers.
“The rising interest rates have directly impacted the borrowing power of buyers, pricing many of them out of the market or forcing them to search for more affordable properties,” said Al Hensling, president of United American Mortgage. “Those who were on the cusp of affordability are now reevaluating their options for purchasing at this time.”
Hensling also highlighted the challenges in Southern California, where the supply of homes for sale is already limited. “Many potential sellers are reluctant to give up their sub-4% mortgages, further impacting the ability of buyers to find homes for sale.”
Latest market news: Rising mortgage rates squeeze Southern California homebuyers, depress sales
What about borrowers who don’t qualify for a good, albeit expensive, Freddie or Fannie conventional mortgage?
There is still some activity in the exotic mortgage space, also known as non-prime or non-qualified mortgages.
“It’s not about the rate, it’s about getting the deal done,” said Dean Ayres, senior vice president at Foundation Mortgage. “We’re seeing many deals that were denied elsewhere for various reasons, but we can make them work with appraisal transfers.”
For full disclosure, my mortgage company works with Ayres, and Foundation Mortgage only offers non-qualified mortgages.
There is also something worth noting – wholesale mortgage rates sourced by mortgage brokers are increasing rapidly. Offering borrowers a zero-point loan has become very expensive, with rates as high as 8% for a 30-year fixed loan for well-qualified borrowers. My advice would be to hold off on spending money on points as rates are likely to be lower in a year, making refinancing a viable option.
For marginally qualified borrowers, providing a zero-point loan has become nearly impossible due to the added pricing. In fact, exotic mortgages can have interest rates exceeding 10%.
Unfortunately, there doesn’t seem to be any good news for homebuyers in the near future, unless they happen to come across a distressed home seller. With rates expected to rise further, prices are likely to flatten, and a hard recession is anticipated next year.
Freddie Mac rate news
The 30-year fixed rate averaged 7.49%, 18 basis points higher than last week. The 15-year fixed rate averaged 6.78%, 6 basis points higher than last week.
The Mortgage Bankers Association reported a 6% decrease in mortgage applications compared to the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $406 less than this week’s payment of $5,073.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 7%, a 15-year conventional at 6.75%, a 30-year conventional at 7.25%, a 15-year conventional high balance at 7.5% ($726,201 to $1,089,300), a 30-year high balance conventional at 7.625%, and a jumbo 30-year fixed at 7.75%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.
Eye catcher loan program of the week: A 30-year adjustable, interest-only and fixed for the first five years, rate at 7.5% with 1 point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected].
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
