On Monday morning, Nov. 13, I revved up my mortgage engine and found that well-qualified borrowers could get a 30-year conventional, fixed-rate loan without points at 7.5%.
By Tuesday evening, 12 hours after the U.S. Bureau of Labor Statistics announced the October Consumer Price Index was unchanged from September, that same 30-year mortgage could be had at 7% with just one-third of a point.
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The payment on a 7.5%, 30-year fixed rate, $726,200 loan on Monday was $5,078. That payment at a 7% shrank to $4,832. Yes, a $246 monthly payment decrease is good news, for sure.
For all column readers who have been begging for better rate news, take that 4.8% mortgage payment reduction as an early inflation-fighting stocking stuffer.
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This week’s Freddie Mac rate survey failed to reflect the bigger consumer mortgage rate rundown.
Freddie showed a meager 6 basis point reduction (7.5% last week to 7.44% this week). Its survey runs from Thursday of each previous week to Wednesday of the current week. It could be that many lenders responded to Fred’s survey before the CPI report and the resulting mortgage rate plummeted.
My client and first-time buyer Danny Jimenez was one of many making offers on a Riverside home. His agent originally offered $550,000 on Monday morning. Other buyers and Jimenez were facing multiple counter-offers. On Tuesday, after he learned mortgage rates dropped, Jimenez upped his offer to $560,000.
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“Lower rates helped with my flexibility for increasing purchasing power,” Jimenez said. “This definitely makes me feel more optimistic. I want to get into the market now before rates drop further and there’s more (buyer competition).”
Despite the revised offer, Jimenez lost the bidding war.
Have rates peaked? Are happy days here again? Or was this week’s rate rundown just an aberration?
Also see: Just 15% of Californians can afford a home, lowest rate in 16 years
“We’ve seen a peak in mortgage rates,” said Mark Zandi, chief economist at Moody’s Analytics. “Fixed rates are hovering around 7%. Housing doesn’t come back to life until rates come back to 6%.”
Zandi said the 20-basis point drop in one day (referring to the 10-year Treasury rate which mortgage rates tend to shadow) was “as good as it gets.”
He thinks home prices will start sliding (but not slumping) over the next 12-24 months. He expects median prices nationwide to slip 3%-5% over that same period.
The economy is a mixed bag according, to Bill Banfield, executive vice president of capital markets at Rocket Mortgage.
“We haven’t seen the effects of the UAW other labor (wage) results. Retail sales show weakness. The government is issuing more debt to deal with the government debt (inflationary). New student loan payments are $100 to $200 per month. Personal loans, credit cards and auto payment delinquencies are increasing,” Banfield said.
Full disclosure: My firm does business with Rocket Mortgage.
On another topic, how is the Israel-Hamas war affecting the U.S. mortgage market?
“The war remains contained. The impact won’t be consequential (related to housing) is the most plausible scenario,” said Zandi. “If Hezbollah and the Iranians (enter the war), Iranian oil shipping will be disrupted. Oil could hit $100 per barrel. The Fed fears it would have to raise rates with a wage, price spiral.”
While we’ve experienced a noticeable mortgage market improvement this week, I’m not so sure the momentum is sustainable in the near term. I see mortgage rates eventually climbing again. One more Fed rate hike is in the cards in Q1 2024. And, then we’re going to have a nasty economic downturn. And yes rates will come down significantly, say to 6%.
I’m going with Danny Jimenez’s thinking. Buy now before rates drop, if you can. When rates hit 6%, a new stampede of buyers will make it more difficult for a low downpayment and first-time buyers to compete.
Freddie Mac rate news
The 30-year fixed rate averaged 7.44%, 6 basis points lower than last week. The 15-year fixed rate averaged 6.76%, 5 basis points lower than last week.
The Mortgage Bankers Association reported a 2.8% mortgage application increase compared with 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 $405 less than this week’s payment of $5,048.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6.375%, a 15-year conventional at 6.375%, a 30-year conventional at 6.875%, a 15-year conventional high balance at 7% ($726,201 to $1,089,300), a 30-year high balance conventional at 7.375% and a jumbo 30-year fixed at 7.25%.
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 7.375% with 1 point cost.
Jeff Lazerson is a mortgage broker and president of Mortgage Grader and Lazerson Learning. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.
