The New Year promises to bring big, juicy cost savings for homebuyers and owners looking to refinance a home.
Here’s a look at my predictions for 2024.
First, significant savings are coming to the title insurance world thanks to something called the Attorney Opinion Letter. It’s a title insurance alternative for home sellers, homebuyers and those refinancing a home loan who have long complained to me and others in the industry about the title insurance racket.
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On Dec. 13, Fannie Mae expanded its AOL guidelines to include condos, townhouses and single-family residences with community associations, particularly new construction. Most properties subject to an HOA or restrictive covenant are now eligible to use an AOL. Previously, the attorney letter applied only to single-family residences.
Title insurance protects you and your lender if someone challenges the title to your property. This often comes in the form of an alleged title defect, which was unknown to you at the time of sale. It typically rears its ugly head at some future date during your ownership, according to the California Department of Insurance website.
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The Attorney Opinion Letter offers similar protections, only it’s vastly less expensive.
For example, pricing from Voxtur offers AOL title insurance pricing of $995 for both a California home seller and homebuyer, assuming a $975,000 sales price and a $780,000 loan amount. To compare: Lawyers Title Insurance charges a title insurance rate of $2,596 to the home seller and $1,290 for the homebuyer. That’s a 75% savings or $2,891 in real dollars.
Title insurance in the United States is a $27.3 billion industry, according to IBIS World.
Don’t be surprised to see title companies stampeding a path to California Insurance Commissioner Ricardo Lara, requesting permission to lower their rates to compete with AOL pricing.
According to Fannie Mae, 5.2% of all homebuyers, 9.5% of first-time buyers and 14.5% of low-income first-time buyers have closing costs that are greater than or equal to their down payment.
Rates next year
The Freddie Mac 30-year fixed will whipsaw next year, bouncing up and down, averaging 6.5% for 2024. Expect Freddie Mac’s rate to end 2024 similarly as it is this year — free-falling. Next year will end with Freddie Mac rates averaging 5.25%.
Freddie Mac started 2023 with an average rate of 6.48% on Jan. 5. It peaked at an eye-popping 7.79% on Oct. 26. Then came a welcome tumble. This week, the average rate dropped to 6.95%. That’s an 84-basis point (nearly a full point lower for a mortgage) decline in six weeks.
Loan volume will soar
Mortgage volume will increase 25% in 2024 to $2.05 trillion, according to my crystal ball. The Mortgage Bankers Association expects total mortgage volume to increase to $1.95 trillion in 2024 compared with an expected $1.64 trillion in 2023.
Even though we see promising signs of lower inflation, that beast has not been conquered just yet. The Consumer Price Index is up 3.1% compared with a year ago in November. Core inflation is up modestly.
The U.S. Federal debt continues to balloon. Funding Social Security and Medicare will require more spending. Many other dollars are being spent to address global geopolitical issues. Whipsaw it will be.
Lawsuits and commissions
Commissions will tumble. This is largely the result of antitrust lawsuits aimed at what I’ll call the commission cartel.
Also see: Will real estate commissions ever change?
In late 2023, a federal jury said the National Association of Realtors and several other big brokerages were conspiring to inflate commission rates. The $1.78 billion verdict promises to upend how sales agents are paid.
Also see: Real estate brokers pocketing up to 6% in fees draw antitrust scrutiny
One industry executive told me more than 50% of buyer-side commissions in Orange County are now 2% or less. Some listing agents are offering as little as $200, $500, $1,000 and $2,500 to the buyer’s agent.
More importantly, this high commission litigation dagger is going to make it much easier for one or more efficient new companies to enter the 2024 market with much lower home selling/bartering costs. Think of a Costco- or Amazon-type model.
Home prices not coming down
Southern California home appreciation rates in Los Angeles, Orange, Riverside, San Bernardino and San Diego counties will double in 2024 to 11%, compared with the 5.5% year-over-year rate in 2023.
As interest rates decline, affordability will improve. Home shoppers who struggled with rising mortgage rates along with rising prices over the past 18 months learned their lesson to jump on the bus sooner. This time around they will jump faster, and yes, deal with even higher home prices.
Also see: Crash or climb? Jobs may decide fate of California home prices
Here’s an example:
Take a home sales price of $843,750, assuming 20% down for a $675,000 loan amount. At today’s 30-year rate of 6.95%, the principal and interest payment is $4,468. Assuming homes appreciate 11%, we’re looking at a sales price of $936,562. Assuming 20% down, the loan amount is $749,250. Assuming a 6% mortgage, the principal and interest payment is $4,492 or just $24 more on mortgage balance that’s $74,250 bigger. But don’t forget property taxes, which will be higher for the more expensive home.
Inventory will grow, too
Southern California inventory of homes for sale in the five-county area averaged 4,508 in 2023, according to data from Reports on Housing. I see 2024 inventory increasing to an average of 7,000 homes as more folks are going to be forced to sell. Job losses and diminished savings are front and center. I’m hearing more and more stories from real estate professionals about homeowners who can no longer afford to live in Southern California.
Expected market time (listing time until going into escrow) of Southern California homes for sale averaged 82 days in the five-county area for 2023, also according to data from Reports on Housing. I see the expected time dropping to 50 days for the 2024 as lower mortgage rates will surely reduce market time.
The end of big investor buyers
End Hedge Fund Control of American Homes Act of 2023, legislation recently introduced in Congress to ban hedge funds from buying and owning single-family home in the United States, will pass in 2024.
Also see: Cash buyers flood US housing market, no-mortgage buys at 10-year high
More Homes on the Market Act, a bill to double the capital gains’ exemptions from $250,000 to $500,000 for single filers and $500,000 to $1 million for married couples will not pass in 2024. The federal government desperately needs more revenue. This one will have to wait until 2025.
Freddie Mac rate news
The 30-year fixed rate averaged 6.95%, 8 basis points lower than last week. The 15-year fixed rate averaged 6.38%, 9 basis points higher than last week.
The Mortgage Bankers Association reported a 7.4% mortgage application increase compared to last week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $324 less than this week’s payment of $5,074.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.625%, a 15-year conventional at 5.5%, a 30-year conventional at 6.125%, a 15-year conventional high balance at 6.125% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high balance conventional at 6.5% and a jumbo 30-year fixed at 6.625%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year, conforming fixed rate refinance at 6.875% without points.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.
