After exceeding 8 percent in October, rising mortgage rates overtook “lack of housing inventory” as the top concern for real estate agents, according to the results of the latest monthly Inman Intel Index.
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Approximately one-third of agents and the brokerage executives who lead them believe high mortgage rates are the biggest for concern in the housing market today, surpassing low inventory and fallout from commission lawsuits such as Sitzer | Burnett, according to the results of October’s Inman Intel Index survey, released last week.
After exceeding 8 percent in October, rising mortgage rates overtook “lack of housing inventory” as agents’ top fear after ranking second in the same survey a month earlier. The findings are among hundreds gleaned from the Inman Intel Index, or Triple I, which was conducted Oct. 23-31 and drew 1,269 responses. The 168-page report is available exclusively to Inman Intel subscribers and includes a comprehensive breakdown of all survey responses.
This month’s Inman Intel Index survey is open now.
“I think that homebuyers and real estate agents understand well that the 3 percent mortgage rate is a historic abnormality and is not the norm,” Gay Cororaton, chief economist for the Miami Association of Realtors, told Inman by email. “But the current rate of 8 percent is also not normal, and I expect rates to go further down in 2024.”
Mortgage rates have fallen significantly in November, with the average 30-year fixed mortgage closer to 7 percent than it has been in two months. For homebuyers and sellers, the benefit is clear, but after more than a year of rates in excess of 6 percent, the decline in rates is also a huge morale booster for real estate professionals, according to the survey results.
Only one group surveyed in the Triple-I didn’t rank interest rates as their top business concern in October. Mortgage originators, who did rank them first in September, put them second behind lack of home inventory. With refinance activity down severely, it stands to reason that brokers and bankers are focused on homes coming on the market.
To track industry sentiment, the Triple-I polls real estate agents, loan originators, brokers, industry executives and proptech leaders monthly. November’s survey opened today and can be accessed here.
No one gets a bite at the apple, though, until someone decides to buy a home, and elevated interest rates continue to factor heavily into the homebuying equation for many Americans. A new consumer survey undertaken by Inman, in partnership with Dig Insights, surveyed 3,000 potential homebuyers and found that many need to see a far more dramatic rate drop to move forward.
More than 2 out of 3 Americans surveyed by Dig Insights indicated they were unlikely to buy in the next 12 months, and 35 percent of those said that high interest rates were a factor in their decision. Asked how much mortgage rates would need to decrease for them to become likely to buy, one-third chose “More than 2 percent.”
According to an Inman Intel analysis last month, a mortgage payment that would have been close to $1,175 four years ago now comes to over $2,600 a month. That’s a problem for a lot of homebuyers, first-timers or not.
“With mortgage rates still expected to be elevated at over 5 percent, there’s naturally a higher financial hurdle for existing homeowners to move,” wrote Cororaton, a former senior economist and the director of housing and commercial research at the Research Group of the National Association of Realtors.
With a potential ceiling on rates, real estate agents and loan originators are looking toward 2024 with cautious optimism. While nearly 70 percent of agents indicated their buyer pipeline was either lighter or substantially lighter than it was 12 months ago, less than 30 percent felt that would be the case one year from now. Over one-quarter of them responded “Heavier,” while just under 44 percent said they expected it to be about the same.
Mortgage originators were even more optimistic, with over 37 percent expecting a heavier borrower pipeline in 12 months.
The Mortgage Bankers Association (MBA), the Community Home Lenders of America (CHLA), and the Manufactured Housing Institute (MHI) submitted a joint letter advocating for more mortgage financing options for manufactured homes to the U.S. Department of Agriculture (USDA).
The letter, sent specifically to USDA’s Rural Housing Service (RHS), addresses a proposed rule aiming to expand financing options for manufactured home buyers and supports three key changes it would make.
The proposed rule was published in the Federal Register in August, and had its comment period extended to Oct. 31 earlier this month.
USDA’s RHS proposes key changes for manufactured home financing
The proposal intends to allow the USDA “to give borrowers increased purchase options within a competitive market and increase adequate housing,” alongside enhancing customer experiences within the single-family housing loan program.
The associations lauded the RHS for three new recommendations, including an update to current regulatory language to meet ownership requirements for energy-efficient manufactured and modular home financing.
A second change recommends removing administrative requirements from the regulations for the review and approval of applications from manufactured housing dealers for direct loans.
Finally, RHS recommends revising the definition of “manufactured home” in the regulations to remove references to RHS Thermal Performance standards for direct loans.
“MHI, MBA, and CHLA are interested in working with RHS to explore the causes and solutions for RHS manufactured home loans so significantly trailing the ratio of manufactured home loans in the single-family home markets,” said Scott Olson, executive director of CHLA, in a statement.
Manufactured homes could help solve affordability woes
In their letter, the associations committed to expanding financing options for manufactured housing to help address challenges consumers are facing from steep housing costs, low inventory levels and rising mortgage rates.
“In 2022, the price for an average manufactured home was $127,250, while the average price of site-built homes was around $413,000,” the letter said. “And, the average income of a manufactured home buyer was about $35,000, while the average income of a site-built home buyer was over $100,000.”
The RHS’ most common manufactured home loan option is the Guaranteed Loan Program (GLP), which guaranteed more than 71,000 loans in fiscal year 2022 and more than 37,000 loans in fiscal year 2023. However, manufactured homes make up a very small share of the total figures, the associations pointed out.
“Unfortunately, the RHS GLP guaranteed only 146 manufactured homes in 2022 and 177 manufactured homes in 2023,” the letter stated.
“Manufactured home loans constituted only a miniscule portion of RHS guaranteed loans – 0.2% of RHS guaranteed loans in 2022 and 0.5% of RHS guaranteed loans in 2023 – even though manufactured homes consistently make up around 10% of new single-family home starts.”
While the associations signal general support for the proposed rule in the Federal Register, they also recognize that the proposed changes are not fundamental.
“MHI, MBA, and CHLA do not consider these actions ‘game changers’ – but they are constructive, and we commend RHS for proposing them,” the letter reads. “MHI, MBA and CHLA would also like to work with you to identify other potential impediments to the ability of RHS direct and guaranteed loans to achieve their full potential with regard to financing manufactured home loans.”
The U.S. Department of Housing and Urban Development (HUD) is also turning its attention toward the needs of rural areas recently. HUD created proposals to expand broadband internet access to a greater number of rural communities.
US mortgage rates surged to their highest level in nearly 23 years this week as inflation pressures persisted.
The 30-year fixed-rate mortgage averaged 7.31% in the week ending September 28, up from 7.19% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 6.70%.
“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” said Sam Khater, Freddie Mac’s chief economist, in a statement. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign — and while a good deal of progress has been made since June 2022, when inflation hit 9.1%, Fed officials say there is still a ways to go.
The Fed’s preferred inflation measure, the core Personal Consumption Expenditures index, is currently 4.2%, which is more than double the Fed’s target of 2%. Economists expect it to drop to 3.9% when the latest reading is released on Friday.
Higher for longer
This week’s mortgage rate surge followed last week’s small move higher, as investors settled in for “higher-for-longer” interest rates after last week’s Fed policy meeting, said Danielle Hale, chief economist at Realtor.com.
Hale said the takeaway from the meeting was that the upward adjustments from the Fed haven’t ended.
“Revised economic projections show that another rate hike this year is definitely on the table, and the expected policy rate in 2024 and 2025 was also higher than previously forecast,” she said. “Market participants are still playing catchup.”
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
The yield on 10-year Treasuries rose from 4.3% on September 20 to 4.6% as of September 27.
Buyers bowing out
Mortgage applications continued to drop last week, according to the Mortgage Bankers Association, as mortgage rates went higher.
“Rates over 7% and low for-sale inventory continue to create affordability challenges for prospective buyers,” said Bob Broeksmit, MBA president and CEO. “Until rates start to come back down, we anticipate housing market activity will remain slow.”
Markets are experiencing an extraordinarily low number of homes for sale as homeowners stay put with ultra-low mortgage rates that are several percentage points lower than the current rate.
There has been a small uptick in newly listed homes coming to market over the past few weeks, according to Realtor.com, which is seasonally atypical, said Hale.
The first week in October tends to be an ideal week to buy a home, she said, since home prices tend to fall relative to summer highs, and fewer buyers contend for homes. Yet housing inventory remains higher than a typical week, Hale said.
But, she added, mortgage rates will continue to be a wild card, which could make it impossible for some buyers to get in the market now.
Even as demand is dropping, with so few homeowners selling, the market is pushing up prices as those few buyers who remain tussle over the handful of available houses, Hale said.
This combination of higher prices and higher mortgage rates contrasts with easing rents over the past few months. This may cause would-be first-time buyers to wait for home prices and mortgage rates to stabilize and rent instead.
“Buying a starter home is more expensive than renting in all but three major US markets [Realtor.com] studied,” said Hale, “which explains why buyer demand is likely to remain relatively low.”
The low-hanging fruit of refi has long been picked A refi wave that has now passed it’s stage of yielding easy pickings, Sweeney suggested. “We had a lot of people enter the market who did not understand what market cycles look like, what kind of volatility they were in store for – but you did,” … [Read more…]
If sky-high house prices and mortgage rates have made you hit pause on your home buying plans, you may want to think again, or so says personal finance personality Dave Ramsey.
The average 30-year fixed mortgage rate increased to 7.79% last week — up from the prior week’s average of 7.63% — and hitting (another) highest level since 2000. At the same time, house prices continue to rise, primarily due to low inventory.
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“[House] prices aren’t going to go anywhere but up, even with interest rates going up,” Ramsey said on a recent episode of “FOX & Friends.”
“The housing market is just stalled and, man, we’ve got Bloody Sunday with the student loans kicking back in [as of Oct. 1] and Christmas is bearing down on us so it is time to get on a budget and get on a plan.”
With that in mind, Ramsey says you shouldn’t sit back and wait for conditions to improve — reminding potential buyers that you can always refinance your home loan to get a better rate down the road. In fact, if you meet two criteria — “you’re out of debt and you’ve got your emergency fund” — Ramsey suggests going for it now.
Here’s how you can hit Ramsey’s critical financial conditions to buy your dream home — plus some other ways to invest in real estate while dodging housing market headwinds.
Become debt free
Ramsey was joined on “FOX & Friends” by his “The Ramsey Show” co-host George Kamel, who backed Ramsey’s bold housing call and mirrored his advice around becoming debt free.
“If you’re a millennial or you’re Gen Z, you’re feeling hopeless right now, you’re feeling cynical,” says Kamel. “Your parents are saying: ‘You’re throwing away money on rent, get a house, get a house, get a house’ — and you’re broke.
“You’ve got to have some patience because rent and mortgages are not apples to apples,” Kamel said, adding buying a home also comes with taxes and insurance — and in some cases, homeowners’ association fees and private mortgage insurance. All those expenses can add up, which is why the Ramsey camp argues it’s important to ensure you’re debt free with an emergency fund established before making an offer.
There are many different ways to handle debt, but in his well-known seven “baby steps” to financial success, Ramsey advocates for the snowball method. With this strategy, you pay off the smallest debt (or account with the lowest balance) first and make only minimum payments on all of your other outstanding debts. Once you’ve paid off your smallest debt, you move on to the next smallest debt, and so on.
But how much interest you end up paying on your debt is an important factor. If you’ve got a pile of high-interest debt on your credit card or your car loan, you could fall behind on your payments, be subject to financial penalties and your balance can quickly spiral out of control, making it even harder to get debt free. For you, it might make more sense to use the “avalanche method” of debt repayment, where you tackle the loan with the highest interest rate first and go from there.
Regardless, to succeed in this journey, you’ll need to stick to a budget that breaks down your monthly income into necessities, wants, savings and debt repayments.
Read more: Thanks to Jeff Bezos, you can now use $100 to cash in on prime real estate — without the headache of being a landlord. Here’s how
Build an emergency fund
Ramsey believes every adult American should have at least $1,000 set aside to cover life’s inevitable surprises, like you’re suddenly slapped with a big medical bill or your car breaks down. That back-up fund will stop you from falling into financial distress.
But that’s just meant to get you started. Once you’ve paid down your debts, Ramsey suggests revisiting your emergency fund to set aside three to six months worth of living expenses — including your rent or mortgage, other loan repayments, grocery and energy bills and other regular expenditures — to cover larger surprises like a job layoff or a long hospital stay.
Wherever you are on your savings journey, you might consider stashing some cash in a high-yield savings account (HYSA). With an HYSA, you could earn more interest on your money and benefit from greater compound growth than you would with a traditional savings or checking account.
You may also want to consider using other high-yield savings products like money market deposit accounts (MMDA) or a certificate of deposit (CD) to make the most of the current high interest rates. But remember that banks and credit unions will often charge an early withdrawal penalty for taking money out of a CD before its maturity date.
Other real estate options
Once you’ve hit those two financial milestones — paying down your debt and building an emergency fund — then Ramsey says you should go ahead and buy a house (if that’s what you want to do). But if you’re unconvinced, there are other ways to get a foothold in the real estate market without dealing with the extensive costs of homeownership.
For instance, you may want to consider putting your money in a real estate investment trust (REIT), which are publicly-traded companies that collect rent from tenants and pass that rent to shareholders in the form of regular dividend payments.
There are also online crowdfunding platforms that allow everyday investors to pool their money to purchase property (or a share of property) as a group.
If you don’t want to make investment decisions on your own, some new online platforms can even help you invest in diversified real estate portfolios that will maximize your returns while keeping your fees low.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Amged Baker, a 40-year-old software developer, wanted to move to a bigger home as the Florida native transitioned into a new role at work that allowed him to be permanently remote. He also wanted more space for his two kids.
But Baker, who works for a real-estate platform, knew that it wasn’t that simple to trade up. Mortgage rates had doubled and home prices continued to rise. In his hometown of Palm Beach County, Fla., home prices soared by nearly 60% over the last five years.
He sold his previous home for $600,000, which had a 30-year mortgage rate of 2.8%. However, he was prepared to give up that rate if he could avoid paying a rate of 7%.
Baker was intrigued byassumable loans. Having refinanced his current home during the pandemic, he was keenly aware of the value of his ultra-low mortgage. He knew his monthly payments would be a lot more affordable with an assumable mortgage — and so his search began.
He’s not alone. It appears to be the housing market’s latest obsession — homeowners, buyers, and real-estate agents are all talking about assumable mortgages.
Across real-estate brokerage sites, listings boast that the home comes with an “assumable mortgage,” described in glowing terms as a “rare find,” “game-changer,” or as one buyer said on social media, “white whale.”
What are assumable mortgages?
With assumable mortgages, the loan — and, importantly, its interest rate — is passed from the seller to the buyer when a house changes hands.
With the U.S. housing market frozen by high rates and low inventory, it’s clear why people have turned their attention to assumable loans. They’re particularly appealing now because they offer homeowners a way to potentially capitalize on their pandemic-era ultra-low mortgage rate by passing it on.
Here’s the catch: Only certain types of loans can be assumable mortgages. The seller must have a government-backed home loan, which is insured by the Federal Housing Administration, Veterans Affairs, or certain loans by the U.S. Department of Agriculture.
“‘Folks don’t want to give up those assumable mortgages because they’re just as attractive to them as they are to you.’”
— Andy Walden, vice president of enterprise research strategy at ICE
These government agencies allow homeowners to transfer ownership of the mortgage to a new home buyer under certain conditions such as the new buyer having good credit, an acceptable debt-to-income ratio, and more.
For the typical home buyer today who is facing a 30-year mortgage with a rate over 7%, assuming an existing mortgage with an interest rate as low as 1.75% is an enticing proposition. It offers an alternative to buying points — fees a borrower pays the lender to cut the mortgage rate on their home loan — or taking out an adjustable-rate mortgage, which comes with its own risks.
For the seller, an assumable mortgage presents another feature to play up when listing their home. There is also, perhaps, some comfort in knowing that their ultra-low interest rate will be inherited by the buyer.
Assumable mortgages were popular in the 1980s
“For the last 40 years, rates have been falling, so nobody cared about assumability,” said Tod Tozer, former president and CEO of Ginnie Mae. “So we’re basically back to the future — we’re back to 40 years ago when 30-year mortgages were close to 13%, 14% back in 1981. And they’ve been falling ever since.”
Ginnie Mae securitizes all FHA, VA, and USDA mortgages for the secondary market. Tozer has also written about assumable mortgages being a “solution” to today’s frozen housing market, as the seller will be able to “receive top dollar for the sale of their home,” and move to another place.
Assumable mortgages were popular in the 1980s when mortgage rates were in the double digits. Back then, many conventional loans were assumable. “It was the standard of the industry,” Tozer said.
But assumable mortgages aren’t as common as a conventional loan, making them hard to come by.
Based on the market today, only 12 million mortgages are potentiallyassumable, which is less than a quarter of all mortgages in the U.S., according to loan-level data from ICE. Of these mortgages, which are primarily FHA, VA, and USDA loans, about 7.2 million or 14% have a mortgage rate of below 4%.
Assumable mortgages can be difficult to find, and it can also be difficult to get homeowners to part with their loan if the alternative is to buy a house with a much higher interest rate.
“Folks don’t want to give up those assumable mortgages because they’re just as attractive to them as they are to you,” said Andy Walden, vice president of enterprise research strategy at ICE, or Intercontinental Exchange, a data company.
Additionally, even after a buyer takes over the mortgage, they will still need to cover the difference between the outstanding balance and the sale price, Walden told MarketWatch.
How assumable mortgages work
So how do they work? Imagine an aspiring homeowner views a home valued at $375,000, and the home comes with an assumable mortgage of $225,000. The buyer in this situation will need to put down $150,000 in cash, or find other financing after they assume the mortgage.
If the buyer requires secondary financing, it will likely come at a higher interest rate, which will offset some of the savings from the assumable mortgage. Nonetheless, for homeowners who are keen on selling, if they have an assumable mortgage, their house will become more attractive to buyers.
“Veterans across the country are sitting on these ultra-low rates,” Chris Birk, vice president of mortgage insight at Veterans United Home Loans, told MarketWatch. “So they’ve got this incredible marketing opportunity.”
“‘Veterans across the country are sitting on these ultra-low rates. So they’ve got this incredible marketing opportunity.’”
— Chris Birk, Veterans United Home Loans
And yet of the 69,000 VA purchase loans that his company processed in 2022, only about two dozen were assumptions.
There’s a lack of awareness about assumable loans, Jason Mitchell, chief executive of Jason Mitchell Group, a Scottsdale, Ariz.-based real-estate brokerage, told MarketWatch.
The first question real-estate agents should ask homeowners who are listing their homes is whether their mortgage is assumable. “If you can mark it as an assumable mortgage at 3.5%, you’re gonna get a better price on your house,” he added.
What happens if the new buyer defaults on the assumable mortgage?
The person who assumes the mortgage also becomes responsible for paying the loan on time. If the new buyer stops making their mortgage payments and goes into default, that does not mean the original owner will be required to pay up.
With FHA loans, “once the assumption is complete, it is a full release of liability for the previous borrower, which means the new borrower (the borrower that has assumed the mortgage) has full responsibility for all aspects of the mortgage,” a HUD spokesperson told MarketWatch.
Similarly, with VA loans, when another buyer assumes the mortgage, there is a release of liability, Birk added. The veteran who owned the home previously isn’t financially responsible if the new owner defaults.
One man’s search for an assumable mortgage
During his search, Baker, the software developer, contacted Chris Tapia, a 41-year-old real-estate broker with Compass Florida. Tapia had met Baker three years ago when the homeowner bought his first home in Palm Beach, and the pair had become good friends.
Tapia had recently introduced the idea of assumable mortgages to Baker. The agent believed that it was one key way for home buyers to take back the purchasing power they lost as homeownership became more expensive.
“Everything is so phenomenally expensive that no one can really afford anything right now,” Tapia told marketWatch.
In his quest for assumable loans, Baker specifically looked for homes that were financed with a mortgage from the Federal Housing Administration, Veterans Affairs, or the U.S. Department of Agriculture.
He then searched home listings from various online brokerages to identify those that were financed with an FHA or a VA mortgage. He also looked at services such as FHA Pros, a site that provides real-time data for FHA and VA condominium approvals.
But homeowners can also look for listings with assumable loans via Google with the following search term: site:compass.com “assumable.”
MarketWatch found several new and old listings advertising assumable mortgages in the home’s description.
Finding an assumable rate of 3.05%
Baker and Tapia attended 20 open houses in Palm Beach County.
They made four offers and ultimately closed on a four-bedroom single-family home in Palm Beach County for $620,000. Baker took over the seller’s 30-year fixed-rate mortgage, under the assumption rules.It has a 3.05% rate.
He currently holds a Federal Housing Administration loan with an outstanding balance of $324,000. As a result, he put down $269,000 in cash.
The seller had only paid off about 3 years on their 30-year loan,so Baker took it over with a monthly payment of about $1,500. He estimated that buying the home with a conventional mortgage at the prevailing rate would cost closer to $2,300 a month.
Baker closed on the home in June 2023, and because he assumed the seller’s loan he did not have to pay thousands of dollars in closing costs.
“You will be hearing about assumable loans more often,” Tapia, the broker, said.
Baker agreed. “To be honest with you, it was always a good deal — it was always better than going the conventional route,” he said.
Additionally, Blend said the new tech enhances loan officers’ capabilities with advanced mobile features, and customers can upgrade to Blend’s standard enterprise edition. IMB Essentials can be fully integrated into the user’s systems within weeks and “with minimal upfront costs.” Read next: Blend in danger of getting delisted from NYSE “This is a historic time … [Read more…]
A home for sale in the Ashby Acres community in Phoenix on Sept. 6, 2023. (Photo by Kevinjonah Paguio/Cronkite News)
PHOENIX – High home sales prices and mortgage interest rates are squeezing out first-time home buyers from entering the market, especially as incomes have not kept up, housing experts say.
In 2020, the housing market was in a frenzy. High numbers of homes were selling, agents’ inventories were low and offers were frequently being made over list prices, said Jason Giarrizzo, a realtor with West USA Realty, who has been in the industry for 31 years.
Coming out of 2020, during the COVID-19 pandemic, the market continued to surge as people began buying real estate, Giarrizzo said. “We weren’t sure where the market was going to go, (if) it (was) going to plummet because of you know, the shutdown and everything, but it was quite the opposite.”
A balanced market in the Phoenix metropolitan area would have inventory levels of about 30,000 properties, Giarrizzo said, but by the end of 2021 inventory began to shrink to about 4,400 properties in the area.
Then, home prices hit a high and interest rates began to climb as the Federal Reserve started raising rates in an attempt to head off inflation. “In all my years of real estate, I don’t think I saw the inventory spike to the level that it did in such a short period of time. We went from 4,400 properties just coming into spring to almost 20,000 properties for sale by summer,” Giarrizzo said.
The downtown Phoenix skyline overlooks homes in the Willo Historic District in Phoenix on Sept. 6, 2023. (Photo by Kevinjonah Paguio/Cronkite News)
Now, the inventory is at about 13,000, which is still half of what a balanced inventory is for the Phoenix metropolitan area, Giarrizzo said.
As mortgage loan interest rates have risen, that frenzy has subsided, especially for the first-time buyers market, Giarrizzo said.
Mortgage loan interest rates vary widely based on factors such as the individual market, credit score of the buyer, price of the home, down payment, rate type, loan term and type.
The current average rate for a conventional 30-year fixed mortgage is at or below 8.063% for a $430,000 home in Arizona for a buyer with a credit score of 700-719 who puts 10% down, according to the Consumer Financial Protection Bureau.
Chris Giarrizzo, a mortgage loan officer at Lennar Mortgage, who has been in the industry for over 23 years and is married to Jason Giarrizzo, said many hourly workers are struggling to afford housing, whether it’s a home purchase, or even rent.
The median home sale price in the Phoenix metropolitan area in September 2023 was $435,700, according to Redfin, a real estate firm that tracks prices and trends.
“I actually wouldn’t say necessarily it’s a bad time to buy a home, it’s just a challenging time to buy a home,” Chris Giarrizzo said.
Although mortgage loan rates have been this high before, high sales prices are providing little relief to buyers, she said, and there’s no relief anticipated until possibly sometime next year.
The last time 30-year fixed mortgage loan rates reached 8% was in 2000.
It was a combination of people who moved to the state and people who had more disposable income following the pandemic shutdown that drove the market takeoff in the Phoenix metropolitan area in 2020, Chris Giarrizzo said.
“We weren’t out shopping and weren’t traveling, and so I’ll be honest, not only in my industry, but in several industries, people had said that they had never been as busy. … We were all working a lot of hours,” Chris Giarrizzo said.
A “perfect storm” of high demand, low interest rates and not enough inventory drove home values up, creating the frenzy of people paying over list price because there was so much competition, she said.
First-time homebuyers in the market
“You’ve got a lot of people that are just sitting on the sidelines right now, eager to jump in and buy their first home,” Chris Giarrizzo said.
Many people locked in low interest rates years ago, so even if it makes sense to move or downsize, they don’t, because they’ll be looking at interest rates of over 7%, Jason Giarrizzo said.
A February Realtor.com survey found that 82% of homeowners with existing low-rate mortgages feel “locked in.”
“Even though the frenzy is over, I don’t see a plummet in home values,” Jason Giarrizzo said. “We’re not going to see big spikes in inventory, I think, due to those people that have locked in on those low rates.”
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Interest rates will eventually fall, but when and by how much is hard to predict, Chris Giarrizzo said, noting rates under 3% were largely pandemic-driven and will probably not be seen again.
In August 2021, the 30-year mortgage rate hovered around 2.8%, according to data from the Arizona Regional Multiple Listing Service.
“If we can get rates back into the fours or fives (percent), I think we’ll see a start to return to a more balanced market,” Chris Giarrizzo said.
In northern Arizona, where Jason Giarrizzo also sells real estate, the properties are being sold more quickly and at much higher prices, although there is still low inventory. “I’ve been working more in that $1 million to $2.5 million range, and actually I’m seeing a lot of those deals go in cash,” he said.
But in Payson, and other nonluxury home markets in northern Arizona, the same housing squeeze is being felt, where the housing is largely unaffordable due to the combination of rates and list prices, Chris Giarrizzo said.
J Cruz, a 46-year-old Phoenix park ranger, started his home search two months ago and does not see a light at the end of the tunnel.
“Trying to find a good deal – that’s been very hard and challenging,” Cruz said. “Monthly mortgage payments are way too high for what I want, and it’s not feasible to pay that every month.”
He fixed his credit score, saved for a down payment and recently started the process of getting a home loan.
But mortgage interest rates are one of the things holding Cruz back. “I don’t want to get into a home that I can afford for a few months and not be able to afford two years from now,” he said.
Cruz is in search of a three-bedroom home in Phoenix, Peoria or Glendale, and even though he is a full-time city employee and has good benefits, he and many of his co-workers have part-time jobs to make ends meet.
“Even though we have a full-time job with the city, you know, in today’s economy it is still a little bit hard,” Cruz said.
New-build financing at interest rates lower than market rate is probably the best route for a lot of first-time buyers, especially if they are struggling to qualify, Chris Giarrizzo said.
Federal Housing Administration loans are available for first-time homebuyers, with down-payment options as low as 3.5%.
Zillow Home Loans is offering a 1% down payment incentive to buyers in Arizona to reduce the amount of time that it takes for eligible buyers to save.
The program is intended for buyers who have kept up with high monthly rent payments but have not been able to save for a down payment.
“I would just advise borrowers that the less down you’re putting, the higher your (monthly) payments are going to be,” Chris Giarrizzo said.
US mortgage rates rose for the third week in a row but stayed just under the 7% threshold.
The 30-year fixed-rate mortgage averaged 6.96% in the week ending August 10, up from 6.90% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.22%.
Elevated mortgage rates in the wake of the Federal Reserve’s historic rate-hiking campaign have taken home affordability to its lowest level in several decades. Buying a home is more expensive because of the added cost of financing the mortgage, and homeowners who previously locked in lower rates are reluctant to sell. The combination of low inventory and high costs has squeezed would-be homebuyers.
Rates have been above 6.5% since the end of May, and this week’s average rate matches the highest level since November.
“There is no doubt continued high rates will prolong affordability challenges longer than expected,” said Sam Khater, Freddie Mac’s chief economist. “However, upward pressure on rates is the product of a resilient economy with low unemployment and strong wage growth, which historically has kept purchase demand solid.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit.
All eyes on employment and inflation data
The rate stayed elevated this week after the Federal Reserve highlighted its reliance on jobs and inflation data in its July monetary policy meeting and in recent comments.
Markets had been waiting for July’s inflation report, released Thursday morning. That report showed inflation rose in July to 3.2% annually, compared to a 3% annual increase in June. That was the first time inflation picked up in a year. The data also showed that shelter costs contributed 90% of the total increase in inflation last month.
“July’s Consumer Price Index holds significant importance for the Fed’s upcoming decisions,” said Jiayi Xu, an economist at Realtor.com.
That faster pace of price increases could support the Fed’s concern that the battle is not over, Xu said. The Fed also will consider the forthcoming August employment and inflation data prior to the next policy meeting, in September.
In addition, the most recent jobs report offered some mixed signals about the labor market, Xu said, including a smaller number of net new jobs added and a dipping unemployment rate.
“While July’s jobs report itself is very unlikely to have a direct impact on the Fed’s upcoming decision, the decline to a 3.5% unemployment rate may imply that more significant slowing is needed to align with the Fed’s projected year-end rate of 4.1%,” she said.
Affordability challenges remain
Borrowing costs will remain elevated until financial markets see an “all clear” signal from the Federal Reserve, accompanied by a stop in interest rate hikes, said George Ratiu, chief economist at Keeping Current Matters, a real estate market insights and content company.
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they go down, mortgage rates tend to follow.
Currently mortgage rates are running higher than they should be in relation to the 10-Year Treasury, given historical trends, he said. The spread between the 30-year fixed rate mortgage and the 10-year Treasury hovers around 300 basis points, Ratiu pointed out, a level seen only a handful of times in the past 50 years and mostly during periods of high inflation and economic turbulence.
“In the absence of the elevated risk premium and hewing closer to a historical average of 172 basis points, today’s 30-year fixed mortgage rate would be around 5.7%,” Ratiu said.
Homebuyers remain sensitive to elevated interest rates, with applications for mortgage rates dropping last week, according to the Mortgage Bankers Association.
“Due to these higher rates, there was a significant pullback in mortgage application activity,” said Bob Broeksmit, MBA president and CEO. “Both prospective buyers and sellers are feeling the squeeze of higher rates as well as low housing inventory, which has prompted a pronounced slowdown in activity this summer.”
While real estate markets are benefiting from more people gaining jobs and better paychecks this year, sales of existing homes have been lagging, said Ratiu.
“The challenge comes mainly from too many buyers chasing not enough available properties,” he said.
Looking to history as a guide, Ratiu said mortgage rates tend to start cooling once inflation abates, with a six-to-eight-month lag.
Mortgage tech firm Blend has launched a lower-cost version of its mortgage suite for retail independent mortgage banks, the company announced this week.
This offering, called Blend IMB Essentials, includes many of the same features of its standard offering for mortgage lenders.
Blend IMB Essentials will streamline the application process, will facilitate pulling soft credits instead of tri-merge credits during the initial phase of application. It will also serve loan officers on-the-go with a mobile application, Nima Ghamsari, C.E.O of Blend told HousingWire.
“The mortgage market is grappling with the effects of high interest rates, home affordability, and low inventory, so reducing costs is top of mind for everyone,” Ghamsari said in a prepared statement. “Retail IMBs have helped build Blend into what it is today and we stand by the industry during this time. We will make sure every loan officer can offer the best possible borrower experience while also being able to conveniently manage their pipeline on the go with the LO Mobile App.”
Additionally, Blend integrates with the most common loan origination systems, pricing engines, as well as other key systems.
Earlier in September, Blend added an assets-derived income capability to its existing “Blend Income” product. This enhancement gives lenders “additional ways to verify more income sources far earlier in the application process than traditionally feasible,” HousingWire reported.