The average 30-year fixed-rate mortgage fell four basis points from the week prior to 2.98%, according to data released Thursday by Freddie Mac‘s PMMS. Within the past almost three months, mortgage rates have only peaked above 3% one time.
“Economic growth remains steady and is bolstering more segments of the economy,” said Sam Khater, Freddie Mac’s Chief Economist. “Although low and stable mortgage rates have kept the housing market booming over recent months, a deterioration in affordability and for-sale inventory has led to a market slowdown.”
Borrowers are still shopping at a feverish pace, at least by historic standards. Pending home sales metrics released by the National Association of Realtors on Wednesday revealed pending home sales reached its highest mark for the month of May since 2005, up 8% from the previous month of April. Even Lawrence Yun, NAR’s chief economist, said this came as surprise given the number of would-be buyers getting priced out in numerous markets.
More recently, however, mortgage applications dipped 6.9% last week, according to data from the Mortgage Bankers Association. That almost 7% dip brought application volume to its lowest level in almost 18 months, according to Mike Fratantoni, MBA’s senior vice president and chief economist.
“Mortgage rates were volatile last week, as investors tried to gauge upcoming moves by the Federal Reserve amidst several divergent signals — including rising inflation, mixed job market data, strong consumer spending, and a supply-constrained housing market that has led to rapid home-price growth,” Fratantoni said.
Increasing Lending and Servicing Capacity – Regardless of Rates
The low-rate environment won’t last forever, and both lenders and servicers need to be able to keep their costs down while managing volume fluctuations once things start to normalize.
Presented by: Sutherland
For some economists, rising rates are the better option for counterbalancing the market. The effect of higher mortgage rates, which in late 2018 crested at 5%, also contributed to more stability in housing prices. The solid demographics for home purchasing and historically low mortgage rates — which have been in a downtrend for four decades — have created a housing market where prices are rising too fast, said Logan Mohtashami, lead analyst for HousingWire.
“Even though we have good demographics for housing, we are not seeing a growth in sales that would account for the rate of growth in prices,” said Mohtashami.
According to Mohtashami, once the 10-year yield gets above 1.94%, mortgage rates could finally rise above 3.75%, giving the market enough time to cool down.
With the July 4th weekend nearly upon us, it’s time to reflect on all that we have been through in the past year and how, as a country, we have overcome so many daunting obstacles, including what we have been through in the housing market.
The first thing that pops into my shriveled brain is how the housing market looked in February of 2020. Data from that month showed that housing was breaking out — but because we received this data in March of 2020, we were all too busy trying to survive to take notice.
Once the fear of the virus calmed down, we began a truly remarkable economic comeback, perhaps the fastest economic comeback from a significant economic downturn in the history of the U.S., with the housing market leading the way.
But for every silver lining there is a cloud.
The solid demographics for home purchasing and historically low mortgage rates — which have been in a downtrend for four decades — have created a housing market where prices are rising too fast. Even though we have good demographics for housing, we are not seeing a growth in sales that would account for the rate of growth in prices.
Before COVID-19 was even a whisper in our minds, I thought that in the years 2022 and 2023, price pressures for housing could be the big story. But I expected that higher mortgage rates of over 4% would keep prices from escalating out of control.
Instead, demand picked up early and because of the effects of COVID-19 on the world economies, mortgage rates are down to all-time lows. Rates haven’t even gotten to 3.5% recently — forget getting above 4%. These low mortgage rates are being sustained in a climate of some of the best economic growth in the 21st century and hotter-than-normal inflation data.
In this first year of economic expansion, we continue to have a good savings rate and healthy household formation demographics.
I anticipate that by September 2022, we will have all the jobs back that were lost due to COVID-19. When one considers that we currently have the most job openings ever recorded in U.S. history, (9.3 million) this date does not seem to be a stretch. Note, too, that all this good economic mojo is going on before we have even started fiscal spending on infrastructure.
With this recipe of excellent national economics, good demographics for housing, an improving employment picture and low mortgage rates, it makes sense that home prices would be hotter than normal. But as I have said before, the high rates of growth in home prices have been more a function of low housing inventory than extreme credit growth in demand.
But all is not hopeless: There are several reasons why housing inventory should pick up in the next several months and going into 2022.
First, the higher prices we are seeing in the current market are making it difficult for some buyers to compete. Clearly not all buyers, but enough to keep the extreme low housing inventory levels hard to maintain. This is a key point, but because we got to all-time lows in housing inventory, a move higher from these extreme low levels isn’t saying too much.
From the NAR:
Second, forbearance programs and the eviction moratorium will be ending soon. Because loan holders started their forbearance programs at different times they will exit the programs at different times, too, so don’t expect a flood of housing inventory to appear at once. Forbearance programs have gone from near 5million loans to a tad over 2 million. A lot of primary-residence households on forbearance programs have already exited the program and housing inventory remains chronically low.
Nevertheless we can expect some of these homes to come on to the market. These homes might be mom and pop landlords who were unable to collect rent during COVID-19 and want out of the rental game or some investors looking to cash in on high home prices. In any case, to think that we would have zero housing inventory created from this crisis is highly unlikely.
Third, while demand is solid in 2021, and we should have slightly more total home sales than we had in 2020, we are not seeing growth in credit (number of mortgages taken out). To think that we would have double-digit price growth with essentially slight home sales growth is the essence of bad inflation. As you can see below, what we experienced from 2018 to 2021 looks nothing like the credit growth we saw from 2002-2005.
We got to all-time lows in housing inventory recently so any increase is going to be a high percentage increase and that is going to fool some folks that the housing inventory picture has changed dramatically. The actual number of homes making up that increase is not going to be much, however, so don’t look at it like that. Instead look to see if total housing inventory gets back to the levels we saw in early 2020.
Getting back to 2020 levels with days on market going past the teens is the No. 1 priority for the housing market. We need more than the typical rise due to seasonality that happens every spring. We want total inventory levels to go above 1,520,000 at minimum.
In 2018-2019, total housing inventory was in the range between1,520,000 – 1,920,000and that level of inventory helped to drive real home-price growth in 2019 into negative territory briefly. Existing home sales during those years stayed in the monthly sale range of 4,980,000 to 5,610,000 homes. More importantly, the days on market were higher than what we see today — and as such we had fewer bidding wars and less price growth.
The effect of higher mortgage rates, which in late 2018 got to 5%, also contributed to more stability in housing prices. 2018 and 2019 were more balanced markets, so in my view it was a healthier housing market compared to what we have today.
Once the 10-year yield gets above 1.94%, which should bring mortgage rates above 3.75%, then things should cool down enough to stabilize the unhealthy price gains we are currently experiencing. The 10-year at 1.94% is not a very high bar, but even so, that is higher than what I have forecasted for 2021.
If housing demand is better than I thought going into the demographic sweet spot years of 2022 and 2023, then housing inventory may not improve much. I still believe in my replacement buyer premise rather than a credit boom housing market. However, if I am wrong, then we will see it for sure in years 2022 and 2023. The price gains in 2020 and 2021 have already met the target that I anticipated to be cumulative for the five-year period of 2020 to 2024. This pathway explains my concern over what has happened recently.
During the years 2020 to 2024, I anticipated total sales (new and existing homes combined) to stay at 6.2 million or higher. The only way I saw this not happening was if home prices got out of hand early on, and guess what, that has happened. While we won’t break lower than 6.2 million in 2021, I am mindful of these recent price gains in both exiting and the new home sales market. Demand for existing homes will come from first-time homebuyers, cash buyers, investors, move-up and move-down buyers. The bump in demographics in the years 2020-2024 has already showed itself to be a powerful economic force for the United States of America.
All these buyer types will create steady replacement demand for the existing home market. The new home sales market, on the other hand, is driven by wealthier older buyers with mortgages. For this reason, new home sales are more dependent on mortgage rates. I recently expressed some concern in this market here.
More than anything, I am hoping that what happened in 2013-2014 and 2018-2019 happens again. During those periods, interest rates went up, which increased housing inventory and days on the market. The additional supply cooled the rate of growth of home prices and stopped the bidding wars. Unless we get an increase in housing inventory from softening demand or end-of-forbearance selling, only an interest rate increase will get us above 1,520,000 total housing inventory and out of the low housing inventory/high price quagmire we have been in since the summer of 2020, which has been most unhealthy housing market post-2008. Still, these are first world problems. I mean, come on, it’s not like we are having a bubble crash like some bros wanted to see.
Average mortgage rates tumbled yesterday following a first-class inflation report. In some cases, they are now back below 7% for an excellent borrower wanting a conventional, 30-year, fixed-rate mortgage. Phew!
First thing, markets were signaling that mortgage rates today might fall but perhaps only a little. However, these early mini-trends often switch speed or direction later in the day.
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.122%
7.147%
+0.15
Conventional 15-year fixed
6.297%
6.321%
+0.1
Conventional 20-year fixed
7.34%
7.403%
+0.03
Conventional 10-year fixed
6.872%
6.985%
+0.05
30-year fixed FHA
7.065%
7.685%
+0.02
15-year fixed FHA
6.503%
6.972%
+0.16
30-year fixed VA
6.75%
6.959%
+0.25
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
The chances of mortgage rates falling far and for long later this year improved yesterday. That day’s inflation report helped a lot.
But I reckon we’ll probably need a heap more similarly rate-friendly data in order to bring about that significant and sustained fall. And, while it’s possible such a heap will be delivered quickly, it’s probably more likely we’ll see any improvements late this year or sometime in 2024.
So, my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time yesterday, were:
The yield on 10-year Treasury notes tumbled to 3.81% from 3.91%. (Very good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were higher. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices decreased to $75.65 from $75.94 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,964 from $1,959 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — held steady at 81 out of 100. (Neutral for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might fall. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Yesterday
Yesterday’s consumer price index (CPI) was a real tonic for mortgage rates. Comerica Bank’s chief economist said that “the fever is breaking“ for inflation.
And The Wall Street Journal (paywall) suggested: “Inflation cooled last month to its slowest pace in more than two years, giving Americans relief from a painful period of rising prices and boosting the chances that the Federal Reserve will stop raising interest rates after an expected increase this month.“
Note that the Journal’s writers (and many others) still expect a rise in general interest rates on Jul. 26. And that might limit how far mortgage rates can fall in the short term.
But other things could also limit the extent and duration of further decreases in mortgage rates. More and more people are talking up the possibility of a “soft landing.“ That refers to the Fed successfully driving down inflation without throwing the country into a recession.
But those of us wanting lower mortgage rates were kind of hoping for a recession. Of course, we didn’t want the bad stuff for the wider population. But mortgage rates tend to fall when the economy is in trouble and rise when it’s doing well.
So, while some falls in mortgage rates might be on the cards later in the year or in 2024, they might not be as big as we’d once been able to hope.
The rest of this week
This morning’s producer price index (PPI) for June was nothing like as important to mortgage rates as yesterday’s CPI. It and tomorrow’s import price index (IPI) are generally seen as secondary inflation measures. But, with markets hyper-sensitive to inflation news right now, they’re worth observing.
Today’s PPI was probably good for mortgage rates. The headline figure (PPI for final demand) came in at 0.1% in June, compared with the expected 0.2%. Just don’t expect it to have as positive an effect as yesterday’s news.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jul. 6 report put that same weekly average at 6.81%, up from the previous week’s 6.71%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. They were both updated in June.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.5%
6.6%
6.3%
6.1%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
It’s time for another mortgage review, this time we’ll take a hard look at “New American Funding” to see if they should be included in your home loan search.
They call themselves a family-owned business dedicated to helping other families improve their quality of life.
That sounds like they have your best intentions in mind, especially when navigating what is arguably one of the biggest life decisions, buying a home.
New American also refers to themselves as the “largest Hispanic-owned mortgage company in the United States.”
And their mission is to increase lending to underserved communities, including Black and Latino borrowers. Let’s find out more about them.
New American Funding Fast Facts
Retail direct-to-consumer mortgage company with 180 branches nationwide
Launched in 2003, headquartered in Tustin, California (Orange County)
Started by husband and wife team Rick and Patty Arvielo
Originally a 40-employee call center, workforce now close to 5,000
Offers home purchase financing and refinance loans
Licensed to do business in all states except Hawaii
Funded $31.5 billion in home loans during 2021 (nearly a top-25 lender nationally)
Services more than 200,000 loans worth approximately $54 billion
Ranked #1 loan servicer by J.D. Power in the 2022 study
New American Funding got started back in 2003, which was around the time the housing market was booming.
Just a few short years later, the subprime mortgage crisis hit, and hundreds of lenders didn’t survive.
So I suppose that’s a testament to the resolve of New American Funding, which is a DBA of parent company Broker Solutions, Inc.
Despite being a young company at the time, they were able to get through the Great Recession and become a mortgage powerhouse just a decade later.
As noted, they are a family company, with husband and wife team Rick and Patty Arvielo the founders. Rick is currently CEO, while Patty is the president.
The direct lender is based out of Tustin, California, which is in the heart of Orange County, home to scores of mortgage lenders and related real estate companies.
The pair grew New American Funding from a 40-employee call center into one of the largest mortgage lenders in the country in less than 20 years.
Today, they count 4,700 individuals as employees, have nearly 200 branches nationwide, and maintain a loan servicing portfolio consisting of over 200,000 loans worth about $54 billion.
Last year, the company funded more than $30 billion in home loans, which puts them very close to the top-25 mortgage lenders nationally.
Roughly two-thirds of their business consisted of refinance loans, with the remainder home purchase loans.
Note: They do not lend in the state of Hawaii at this time.
New American Is the #1 Hispanic Mortgage Lender
As noted, New American is on a mission to increase homeownership for underserved communities, especially Black and Latino borrowers.
Last year, 36% of their home purchase loans went to minority borrowers, compared to just 25.5% for all lending institutions, based on 2020 HMDA data.
They are also the #1 lender to Hispanic borrowers, with a larger percentage of their loans going to Hispanic borrowers versus any other lender in the top-25.
Additionally, their share of purchase lending to Black borrowers was 85% higher than the industry average, a result of their “New American Dream” initiative launched in 2016.
They are also committed to lending $25 billion in new mortgages to Hispanic borrowers by the year 2024, and $20 billion to Black borrowers over the next seven years.
When it comes to diversity at the company itself, 23% of the company’s workforce is Hispanic, 45% of the company’s employees are minorities, and 60% are women.
What Loan Types Does New American Funding Offer?
Home purchase financing
Home renovation loans
Refinance loans: rate and term refi, cash out refi, and streamline refis
Conventional loans: Conforming and jumbo
Government loans: FHA, VA, and USDA loans
ARMs: 5/1, 7/1, 10/1 varieties
Fixed mortgages: 30-year and 15-year options
Choose your own term mortgages
Renovation loans and Energy Efficient loans
Non-QM loans (self-employed borrowers)
Interest-only mortgages
HELOCs
Buydown Loans (such as a 3-2-1- buydown)
One great thing about New American Funding is that you can get pretty much any type of home loan under the sun.
This includes home purchase loans, home renovation loans, rate and term refinances, cash out refinances, and streamline refinances.
They are a Fannie Mae, Freddie Mac, and Ginnie Mae direct lender, seller, and servicer, so they’ve got all the conforming and government loan options you can think of.
That includes the usual suspects like conforming mortgages, FHA loans, USDA loans, and VA loans. But that’s not all.
They also offer interest-only mortgages, jumbo loans, non-QM loans, reverse mortgages, and some proprietary offerings like the “I CAN Mortgage.”
So what is an I CAN Mortgage you ask? Well, it’s simply a choose your own term mortgage, that allows for custom terms ranging from 8 to 30 Years.
For example, if you’re 7 years into a 30-year fixed and want to refinance your mortgage to take advantage of today’s low mortgage rates, you could go with a 23-year term instead of restarting the clock.
This also works for new purchases, so you can just start with a 24-year fixed instead of the standard 30-year fixed to save some dough and own more of your home sooner.
Their so-called Self Employed Mortgage, which may be considered non-QM, allows for the use of bank statements, asset depletion, or just one-year of tax returns to qualify.
They also offer HELOCs, including fixed-rate, adjustable, and hybrid options for those looking to tap equity, along with renovation loans such as the FHA 203k refinance loan and Fannie Mae Homestyle.
New American also operates both a builder and real estate lending division, so they may be a good fit for someone buying a brand-new home or building a home (new construction).
Lastly, they offer Energy Efficient Loans for those looking to finance a home that is already energy-efficient or to make an existing property simply greener.
Pathway to Homeownership Initiative
In February 2023, NAF launched its “Pathway to Homeownership” initiative to help customers purchase their first home in designated areas throughout the country.
It provides up to $8,000 in assistance that can be used for down payment or other closing costs. And best of all it doesn’t need to be paid back.
There are no income limitations, and it can be combined with other down payment assistance programs.
To qualify for Pathway, you must be a first-time home buyer with a minimum credit score of 620. And the property must be a one-unit, single-family home.
Down payments as low as 3% are acceptable. Be sure to inquire with your NAF loan officer to determine if you’re eligible.
NAF also recently partnered with Uqual, “a full-service loan readiness company,” to help prospective home buyers make the leap from renting.
It seeks to turn a loan denial into an approval by improving an applicant’s credit, lowering their debt, and increasing their savings.
Those who complete the loan readiness program and use NAF for their mortgage needs are eligible for a $500 lender credit.
Exclusive Mortgage Provider for Patch
In late February 2023, New American Funding announced that it became the exclusive mortgage provider for “hyper-local news” website Patch.
The partnership will result in NAF placements on the mortgage and real estate hub on each of Patch’s community websites.
And the lender will feature in Patch’s weekly newsletters in over 1,200 communities nationwide.
The link up makes sense because NAF is licensed in all 50 states and has loan officers located throughout the country.
Applying for a Mortgage with New American Funding
They have a short form you can fill out on their website to get started
Then a loan officer will call you to go over your loan scenario and options
You can also call them directly or use their branch/loan officer directory to find someone specific in your area
Loan process appears to be somewhat digital, allowing for document uploading and loan tracking online
New American Funding a direct-to-consumer retail mortgage lender, meaning you work directly with the company to close your loan.
At one time, they ran a wholesale division, but chose to close it in 2016 to focus on their growing retail operations.
They say you can get pre-approved for a mortgage in as little as 24-48 hours, which is a bit slower than some fully digital lenders that can do the same in minutes, such as Rocket Mortgage or Better Mortgage.
But they do offer the ability to apply online or over the phone. If you get started via the website, you basically fill out what amounts to be a lead form. Then someone will contact you by phone.
You can also look up specific loan officers via the branch directory on their website if you want to ensure you get someone local and highly recommended.
Once your loan is submitted, they offer a digital process that includes uploading necessary loan documentation, along with the ability to track your loan progress online via the borrower portal.
You also get a dedicated loan officer that will help you along the way, which differs from some of the startups that only provide assistance as needed.
New American Funding’s Mortgage Rates
I’m all about transparency, and fortunately New American is too when it comes to their mortgage rates.
They openly advertise them right on their website for all to see. You can check rates daily for the 30-year fixed, 15-year fixed, FHA 30-year fixed, and VA 30-year fixed.
It should be noted that their rate assumptions are very tough, calling for a 740+ FICO score, 60% LTV, primary residence, with up to one discount point on their standard 30-year fixed mortgage.
In other words, if you have a lower credit score, less equity in your home, need cash out, or don’t occupy the property, the interest rate could be substantially higher.
The good news is their advertised rates appear to be quite low, so if you are a good borrower, they might be quite competitive.
As always, take the time to check out the rates of other lenders to ensure you do your due diligence.
In terms of lender fees, it’s unclear if they charge a loan origination fee or separate fees for underwriting and processing. Be sure to inquire when speaking with your loan officer.
New American Funding 14 Business Day Close Guarantee
If you happen to be buying a home, the company has a “14 Business Day Close Guarantee” to ensure you get to the finish line quickly, especially in a competitive market.
They say they have industry leading turn times because they’re an “all-inclusive mortgage banker.”
Their operations staff, including loan underwriters, doc drawers and funders, work under one roof, enabling them to close loans fast.
They offer 24-hour credit approval by senior underwriters and 24-hour underwriting turn times on conditions.
The 14-day window begins when your initial application package is complete and you have authorized credit card payment for your home appraisal.
If they fail to perform as agreed, a credit of $250 will be applied toward closing costs. While it’s not much money, the fact that they can close purchase loans in just two weeks is pretty attractive.
New American Funding and EasyKnock
In late January 2023, New American Funding and EasyKnock announced partnership “to offer innovative solutions to underserved communities.”
It’s unclear exactly what those solutions are, but my assumption is that the lender will offer home loan programs to EasyKnock customers.
These will allow borrowers ” to access their home equity through credible and non-traditional means,” which in turn helps keep them in their local communities and schools.
This tells me it might be a home equity product, such as a HELOC.
EasyKnock allows homeowners to sell to EasyKnock but remain in the properties as renters.
New American Funding Reviews
New American has a 4.87-star rating out of 5 on Experience.com from around 180,000 reviews.
Yes, nearly 200,000 customer reviews and a near-perfect rating. That’s truly impressive.
They also have a 4.91-star rating out of a possible 5 on Zillow from 8,500+ customer reviews.
Many of their reviews on Zillow indicate a lower interest rate and/or lower closing costs than expected.
Similarly, they have a 4.9/5 rating on LendingTree from nearly 60,000 reviews, with 99% of customers saying they’d recommend them to others.
Lastly, the company boasts an A+ Better Business Bureau rating and has been accredited since 2004.
So they appear to be very well-liked, though experiences can always vary based on individual circumstances, especially at a large company.
Tip: You can view the ratings of specific loan officers near you if you go the branches tab on their website, select a location, then scroll down to “Meet the Team.”
This allows you to see the staff who work in a particular office, along with their individual ratings as loan officers.
If you like what you see, you can apply for a home loan directly with that individual, or simply get in touch if you have questions.
Pros and Cons of New American Funding
The Good:
Offer virtually every home loan type imaginable including reverse mortgages and HELOCs
Can select your loan officer from an online directory and/or visit a physical branch
Direct lender, seller, and loan servicer with quick turn times and fast closings
Appear to offer competitive mortgage rates
Excellent customer reviews across all ratings websites
A+ BBB rating, accredited company since 2004
14 Business Day Close Guarantee for home purchase loans
Can manage your funded loan with the New American Funding My Mortgage App
They service their own loans instead of transferring them
Free mortgage calculators, mortgage glossary, and market update on their website
Potential Bad:
You must speak to a loan officer before you can apply
Not available in Hawaii
New American Funding vs. AmeriSave
AmeriSave
New American Funding
Digital application
Yes
Yes
Branch locations
No
Yes
Loan types offered
Conventional, FHA, USDA, VA, jumbo
Conventional, FHA, USDA, VA, jumbo, reverse, HELOC
Mortgage applications increased 5.7% for the week ending July 23, mostly on the back of fast-falling mortgage rates.
The 10-year Treasury yield went into free fall last week, as investors grew concerned about the rise in COVID-19 variant cases and the potential economic fallout, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.
That led to the 30-year fixed mortgage rate declining to its lowest level since February of this year, according to the latest report from the Mortgage Bankers Association. And the 15-year rate fell to a record low last seen in 1990. Those ultra-low rates naturally resulted in a sharp uptick in refinancing activity.
“With over 95% of refinance applications for fixed rate mortgages, borrowers are looking to secure a lower rate for the life of their loan,” Kan said Wednesday.
Kan noted that the low rates didn’t spur the purchase market, which hasn’t been able to overcome record home prices. The purchase index decreased for the second week in a row to its lowest level since May 2020. It’s now fallen on an annual basis for the past three months.
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Kan noted that the Federal Housing Finance Agency reported that May home prices were 18% higher than a year ago.
“That continues a seven-month trend of unprecedented home-price growth,” he said. “Potential buyers continue to be put off by extremely high home prices and increased competition.”
The refinance share of activity of total mortgage applications increased to 67.2% from 64.9% the previous week. On an unadjusted basis, the market composite index increased 6% compared with the previous week. The seasonally adjusted purchase index decreased as well, down 2% from the previous week.
The FHA share of total mortgage applications decreased to 9.1% from 9.6% the week prior, and the VA share of total mortgage applications decreased to 9.8% from 10.5%.
Here is a more detailed breakdown of this week’s mortgage applications data:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) decreased to 3.01% from 3.11%
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.11% from 3.13%
The average contract interest rate for 30-year fixed-rate mortgages decreased to 3.03% from 3.08%
The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.36%, the lowest level in the history of the survey, from 2.46%
The average contract interest rate for 5/1 ARMs increased to 2.81% from 2.74%, with points unchanged at 0.30 (including the origination fee) for 80% LTV loans
Maybe it’s the fact that there’s a giant piece of plywood sticking up 50 feet in the air next to the home you’re attempting to sell or get the “right value” on.
The home builders and real estate agents are complaining about appraisals being impacted by nearby bank-owned properties, but often these new developments are a big mix of foreclosed homes, new, never occupied homes, half-constructed homes, and giant plots of dirt.
If you look at the photo below, you’ll see what I’m getting at; on the same street you’ve got one potentially occupied or foreclosed finished home, a nearly finished home, and a skeleton of a home.
Next to those are empty dirt lots; how can you really get a good value on a street like that, especially when there’s a similar development another mile away?
Builders haven been pushing for big tax credits, low mortgage rates, and more, because they want to improve affordability without lowering prices to more suitable levels.
But now appraised values are getting in their way, which is why they want the HVCC moratorium in place, though it’s unclear if that will actually improve values much, as the banks and mortgage lenders seem to want appraisals on the low end anyways.
If you’re attempting to feel out the housing market at the moment, consider this: People are reportedly camping out in their cars to snag the best lots in a new housing development outside Dallas.
Sure, it’s just one housing development in one city, but the message is clear; folks are getting crazy over real estate again.
It sounds more like a scene from a Black Friday deal at Walmart or Best Buy, but no, this has nothing to do with the latest PlayStation or iPhone.
Instead, these folks camped out (some in cars, some in tents, some on cots) to get the first crack at one of 83 homes that went on sale Tuesday in McKinney, TX, a popular suburb north of Dallas that is one of the top 10 fastest growing cities in the U.S.
First Texas Homes, which is selling the lots, said they expected to sell all of them within 24 hours of launching the sale.
As for why people camped out, it was to get so-called premium lots, such as corner lots. One person in the line already had their lot picked out and didn’t want anyone else to take it.
Meanwhile in Manhattan
It’s not just Texas that’s enjoying a real estate boom. In New York City, the price of real estate in Manhattan hit a new record high during the third quarter.
In the Big Apple, a single square foot would set you back an astonishing $1,497, per a new report from Douglas Elliman.
Douglas Elliman chairman Howard Lorber told CNBC, “Everything is selling fast, I don’t see how there could be a bubble.” Famous last words? We’ll see.
The price per square foot surged 18% from a year earlier and 11% quarter-to-quarter, thanks mainly to new condo developments in the city.
That, coupled with limited inventory, is keeping demand red hot and propelling prices to new highs, whether affordable to the masses or not.
Housing Affordability Best in Two Years
Despite all these home price increases, housing affordability has actually improved over the past couple years.
A new report from RealtyTrac found that while home price appreciation outpaced wage growth between Q1 2014 and Q1 2015 in 68% of U.S. counties analyzed, the average mortgage rate on the 30-year fixed slipped from 4.34% to 3.77%.
Additionally, because wage growth outpaced home price appreciation in 32% of counties included in the report, buying a home in the first quarter of 2015 required a smaller share of the average wage in 58% of counties nationwide.
Still, the average U.S. home price has risen 24% during the housing recovery (since the first quarter of 2012) while the average weekly wage has only chalked a seven percent gain over that period.
That means many regions of the country have fallen out of reach for a lot of potential buyers, especially first-timers that are integral to a sustainable recovery.
The good news is that the average wage has increased 34% since 2006, when home prices were at their least affordable levels in the past 10 years.
The combination of higher wages and lower mortgage rates has led to a 48% improvement in affordability since that time.
But if rates rise just a quarter of a percent, 13% of housing markets will exceed historical affordability norms.
So a lot hinges on mortgage rates staying put, which many believe won’t be the case for much longer. Interestingly, if wages increase and the economy looks better, interest rates will also probably rise, that’s just how the economy works.
If prices continue on their upward trajectory, a wage increase likely won’t help much if mortgage rates rise in tandem.
For the record, “virtually all markets in California and metro New York” are already out of reach, even with nationwide affordability still decent.
In places like Riverside, CA, Orange, CA, Kings, NY, Fairfax, VA, Cook, IL, and Suffolk, NY, wages are growing faster than home prices, but oddly enough homes in some of these places still aren’t affordable.
Perhaps home price appreciation is beginning to top out in some of these hot markets.
Either way, the mentality we’re beginning to see, where home sales are going down like a tent sale (no pun intended), is a bit disconcerting.
Sure, it’s not 2006 all over again, but we’re certainly heading that way, even with those unmissable low mortgage rates available.
The so-called core measure — which economists view as the better indicator of underlying inflation — advanced 4.8% from last June, the lowest since late 2021 but still well above the Fed’s target.
This is the smallest 12-month increase since the year ending March 2021 and the 12th consecutive month of inflation declines.
Indexes that increased in June include shelter, motor vehicle insurance, apparel, recreation, and personal care. The indexes for airline fares, communication, used cars and trucks, and household furnishings and operations were among those that decreased in June.
Shelter, which is the largest category, also posted a sizable increase, rising 7.8% year over year (down from 8.0% in May) and accounting for more than 70% of the total increase in the all items less food and energy index which was up 0.2% in June.
But the shelter inflation figure is highly imperfect. The BLS’s CPI metric lags asking rents because the CPI measures in-place rent, and because most renters see a change only once per year, the index lags significantly from asking rents on new leases. Peak rent inflation was between May 2022 and February 2023, but has declined in subsequent months and is expected to continue to do so.
An index tracking the rent of primary residences slowed to a 0.46% change in June, the weakest increase since March 2022.
“Despite the positive inflation report, the Fed likely will resume its rate hikes when it meets later this month, remaining committed to raising interest rates until the magical 2% inflation target is met,” said Lisa Sturtevant, chief economist at Bright MLS.
The problem is that housing costs, which account for a large share of the inflation picture, are not coming down meaningfully in the CPI. In June, the index for shelter accounted for 70% of the increase in the CPI. Rents were up 8.3% in June, while owner costs rose 7.8%.
Unfortunately, the Fed does not have the right tools to tackle high housing costs in the U.S, Sturtevant noted. Initially, higher rates did cool housing demand. But because rates had been pushed so low by the Fed during the pandemic and then increased so quickly, the Federal Reserve’s rate increases not only reduced housing demand—as intended—but also severely limited supply by locking homeowners into homes they would have otherwise listed for sale.
“Housing should not be treated like other goods and services in the CPI’s basket. A home is not a dozen eggs or a flat screen tv or a trip to the beach. Pushing rates higher without a strategy for increasing supply in the market will not cause housing costs to fall—until the Fed has gone too far by sending the economy into a recession and decimating demand through job and income losses,” said Sturtevant in a statement.
In the meantime, with inventory hovering around record lows and mortgage rates north of 7%, a generation of Americans is being forced to the sidelines, excluded from the ability to build wealth through homeownership.
Nevertheless, there are signs the housing industry is turning a corner. “Low inflation means low mortgage rates. Therefore, decelerating consumer prices could steadily lift home sales and increase home production in a few months,” said Lawrence Yun, chief economist for the National Association of Realtors. “Moreover, with so many empty apartment units under construction, rents could plateau by this time next year.”
Yun, who’s been critical of the Federal Reserve’s series of rate hikes, said the monetary policymakers “misjudged the early strength of inflation, which got out of control. Now it could misjudge on the economic front.” He said the body is too focused on lagging indicators like jobs rather than early indicators like future inflation and commercial leasing activity.
“They should look ahead and stop raising interest rates,” he said.
Mortgage rates fell below 3% in the week ending November 10, according to the latest Freddie Mac PMMS mortgage report.
The 30-year fixed-rate mortgage declined to 2.98% last week, falling 11 basis points from 3.09% the week prior. A year ago at this time, the average 30-year fixed-rate loan averaged 2.84%.
“Despite the re-acceleration of economic growth, the recent bond rally drove mortgage rates down for the second consecutive week,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “These low mortgage rates, combined with the tailwind of first-time homebuyers entering the market, means that purchase demand will remain strong into next year. However, affordability pressures continue to be an ongoing concern for homebuyers.”
The decline in rates has also led to a surge in refinancings. According to the Mortgage Bankers Association, the refi index rose 7% for the week ending Nov. 5. Although overall activity remains close to January 2020 lows, homeowners were spurred to act on the decrease in rates, he said.
Mortgage rates have remained low in large part due to the Federal Reserve’s massive monthly purchases of $120 billion in U.S. Treasury bonds and mortgage-backed securities. The Fed has said that it’s satisfied that substantial economic progress has been made in the labor market and will begin tapering its asset purchases later in November.
Lenders – Now is the time to prioritize lead generation
HousingWire Editor-in-Chief Sarah Wheeler and Deluxe Senior Business Development Executive Mark McGuinn discuss the challenges lenders are facing to optimize lead generation, even as mortgage rates continue to change.
Presented by: Deluxe
Although rates remain close to historic lows, market observers do expect rates to climb upward, eventually. The MBA projects that by the end of 2022, mortgage rates will approach 4%.
Economists at Freddie Mac said the 15-year fixed-rate mortgage averaged 2.27% last week, down from 2.35% the week prior. It’s actually lower than it was a year ago, at 2.34%. Similarly, the five-year ARM dropped slightly to 2.53%, down one basis point from last week. A year ago, 5-year ARMs averaged 3.11%.
On Monday, a trio of researchers from the San Francisco Fed released an economic letter pondering what was different about the latest housing boom.
The reason they’re asking this question is because home prices are now nearly back to their pre-recession peak. Uh oh?
In some states, they’re actually higher, but I suppose nationally they’re still below.
Obviously this has some folks worried we could be in for another housing crisis seeing that the peak prices seemed ridiculous back in 2006, less than 10 years ago.
The good news, in their eyes, is that this time things are different. Famous last words? Probably, but let them tell you why.
During the prior housing boom, both the home price-to-rent ratio and household leverage (as measured by mortgage DTI) increased together in what they refer to as “a self-reinforcing feedback loop.”
Basically, home prices kept climbing and credit kept loosening to keep up. So you had home prices that were out of reach that could only be purchased with increasingly flexible financing terms.
So we saw zero down mortgages, stated income mortgages, option arms, which allowed borrowers to make a negative amortization payment, and other exotic loan features.
Of course it all came crashing down, but we were able to bounce back over the past decade thanks to reduced housing inventory, super low mortgage rates, better underwriting, and so on.
This Time It’s Different
The researchers claim it’s a lot different this time around because there’s a “less-pronounced increase in housing valuation” coupled with a decline in household leverage.
In other words, home prices haven’t risen as much relative to rents, which are skyrocketing, and those who do buy homes are putting more money down and taking on healthier monthly payments.
While there are zero down options kicking around, most new homeowners put down more money when buying these days.
Interestingly, even though there are low-down payment options, such as FHA loans, which require just 3.5% down, or the new Fannie/Freddie 3% down option, the market might actually demand higher.
You see, it’s hard to get your offer accepted these days, so coming to the negotiating table with your 3% or 3.5% down payment might not get much notice.
Instead, the sellers might favor the buyer willing to put down 10% or 20%.
Additionally, even though there are low-down payments programs available, borrowers actually need to qualify these days.
You can’t just say you make $10,000 a month working the drive through window anymore. Yes, that probably happened a lot in 2006.
But even the researchers are quick to point out in their own paper that, “the phrase “this time is different” should be met with a healthy degree of skepticism.”
It seems they know themselves that it’s foolish to think like this, though they go on to talk about how things appear a lot better than prior to the earlier crash.
For instance, the home price-to-rent ratio reached an all-time high in early 2006, but currently sits about 25% below the bubble peak. You can partially thank surging rents for that.
Front-end DTI ratios (housing payments relative to income) also hit an all-time high in late 2007, meaning homeowners were highly leveraged at a time when home prices were topping out.
We all know what happened next.
Where Do We Go From Here?
Now things get interesting. While it’s great that this latest boom has kept home prices in check relative to rents, and household mortgage debt isn’t completely out of control, it doesn’t mean we’re good to go.
I’m sure there was a time during the prior boom (and other booms for that matter) when everything looked peachy.
Then a few short years later, we’re all asking ourselves how this could have happened again.
As the researchers aptly point out, “policymakers and regulators must remain vigilant to prevent a replay of the mid-2000s experience.”
But will they? We recently introduced 3% down payments and Fannie and Freddie are pushing lenders to offer the product more to cash strapped borrowers.
There’s also chatter about another FHA premium cut to spur lending as if anyone is holding back for that reason at the moment.
Home prices are also creeping higher and higher to a point where we’re at the very least facing an “affordability crisis.”
In fact, some parts of the country won’t be affordable for a full 30 years to some prospective home buyers.
And how exactly will we unload all these pricey homes in the next several years, especially if mortgage rates go up, as they’re projected to?
Perhaps raising acceptable LTVs again will be the answer. Or maybe non-QM lending will finally get legs with some new form of fancy stated income underwriting.
I don’t know, but it sure feels like we’re headed down the very same path we just got off a few years ago.
But maybe this just isn’t your father’s (or mother’s) housing market any longer. Gone are the days of 20% down payments, a mortgage that is held by your local bank, and slow but steady appreciation.
Today, it’s rampant speculation, hedge funds, booms and busts followed by more booms and busts, perhaps because real estate has become such an investment obsession as opposed to a place to lay your head.