Mortgage Rates Too High? (Blame the Fed, Wall Street and Your Neighbor.)
Lenders use several bits of data to set mortgage rates, including trading moves by investors. Without market volatility, the rate could be under 7 percent.
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Joe Rennison and
Nov. 3, 2022
Mila Adams moved to Utah in May with her husband and toddler son to be closer to family, but they didn’t expect to be living with her husband’s parents nearly a half year later.
The couple’s search for a home of their own became a race to stay ahead of the rapid rise in mortgage rates. Each time rates climbed — passing 5, 6 and, recently, 7 percent — the size of the houses they could afford shrank.
“We looked at some new builds and some older homes, but it seems like with every rate hike our buying power goes down, and we have to readjust our budget,” said Ms. Adams, 29, who was looking for a three-bedroom house roomy enough for a family with plans to grow. “The high prices of homes are not going down as quickly as the rates are going up to adjust for that loss of buying power. The prices are just kind of stubborn.”
Once rates crossed 7 percent, the couple’s mortgage pre-approval was rescinded because the costlier loan, combined with her husband’s student debt from dental school, would have pushed their debt level too high.
which recently crossed the 7 percent threshold before retreating slightly on Thursday, could be as much as a full percentage point lower if investors, homeowners and prospective buyers hadn’t been shifting their behavior so sharply in reaction to the Fed’s moves.
“A whole percentage point on your mortgage rate is due to what is going on in mortgage markets,” said Scott Buchta, a mortgage analyst at Brean Capital. “The volatility in the market has been passed through to consumers as well.”
@JARennison
Tara Siegel Bernard covers personal finance. Before joining The Times in 2008, she was deputy managing editor at FiLife, a personal finance website, and an editor at CNBC. She also worked at Dow Jones and contributed regularly to The Wall Street Journal. @tarasbernard
A version of this article appears in print on , Section B, Page 1 of the New York edition with the headline: Taking Stock Of Climbing Home Rates. Order Reprints | Today’s Paper | Subscribe
Featured image credit: Howard Nourmand courtesy of Nourmand & Associates
A home is a symbol of status.
That sentence rings true whether you live in New York or Beijing, Vancouver or Madrid, Prague or Mumbai. But nowhere is the competition to stand out quite as fierce as Los Angeles, where million-dollar homes go to extreme lengths to appeal to potential buyers.
In what seems like an endless parade of upscale amenities, sprawling floorplans, and lavish interiors, the luxury segment of L.A.’s already competitive real estate market is constantly adapting to the changing needs (and growing expectations) of buyers in this price range.
But in a city that’s rife with new builds, there’s an undisputed appeal for homes with a bit of history — and a design that’s guaranteed to withstand the passage of time.
Paul Williams homes are hot commodities in L.A.
Out of the many architects that left their mark on the City of Angels, one name stands out: that of Paul Revere Williams, one of the most prolific and accomplished architects in recent history.
With his wide range of architectural styles — from traditional colonials to casual ranch-style to midcentury modern marvels — Williams left his mark on the city’s most glamorous and exclusive enclaves, including Beverly Hills, Brentwood, Bel Air and the Hollywood Hills.
He designed or revamped close to 3,000 buildings starting in the 1920s all the way through the 1970s, and rose to fame as the go-to architect of California celebs and business magnates alike.
Paul Williams counted Frank Sinatra, Lucille Ball and Desi Arnaz, William “Bojangles” Robinson and other entertainers among his high-powered clientele.
But beyond his flashy role as ‘The Architect of Hollywood”, Paul Williams built countless homes whose owners have not been immortalized on The Hollywood Walk of Fame. And these homes, with their timeless design and quality of build, continue to attract buyers in droves.
“Paul Williams’ homes are hot commodities in LA. His classic style and long-standing career designing for LA’s most storied legends make him one of city’s most celebrated architects. Owning a Williams home is owning a one-of-a-kind, classic home that has stood the test of time.”
Michael Nourmand – President, Nourmand & Associates
SEE ALSO: The Chemosphere House and 6 other striking John Lautner-designed homes
And he should know. Michael’s company, Nourmand & Associates, a leading real estate brokerage in the Los Angeles area, sold three Paul Williams-designed homes in 2021 alone — one more charming than the other.
“It’s an honor for myself and Nourmand agents to have represented both buyer and seller in the most recent Paul Williams listings.”
Most recently, Nourmand & Associates closed on the $11.5 million sale of Villa Andalusia (pictured above), a 1931-built Italianate Pallazo that’s touted as one of the finest properties in Los Feliz. Konstantine Valissarakos represented the buyer in the transaction.
The sale followed two other noteworthy transactions closed by Michael Nourmand himself; the first, a picture-perfect family home that traded for $8.75 million, and the other an exceptionally well-crafted Beverly Hills home that commanded a $5.198 million sale price. For the latter, Michael Nourmand held the listing alongside Adam Sires, with another Nourmand & Associates agent, Jill Epstein, representing the buyer.
And these million-dollar sales are by no means outliers.
In early 2021, a Brentwood manor Paul Williams built back in the 1930s for opera singer-actress Grace Moore and her husband, Spanish actor Valentín Parera (later occupied by legendary actor Tyrone Power) sold for $10.1 million to veteran CAA agent Josh Lieberman.
Prolific celebrity house flippers Ellen DeGeneres and Portia de Rossi have also just closed on a Paul Williams-designed home in Beverly Hills Post Office. According to the Los Angeles Times, the couple paid $8.5 million for the pristine mid-century home that’s tucked in the gated enclave of Hidden Valley Estates.
But beyond the visual and structural appeal of the homes the lauded architect left behind, there’s a much more complex legacy.
The legacy of Paul R. Williams
While he’s widely remembered as “the architect of Hollywood” and a top choice among the stars of his time, Williams’ repertoire is vast in both style and quantity, creating some 3,000 buildings before his death in 1980.
A 2012 NPR profile chronicling his work crowned him as “the trailblazing architect that helped shape L.A.” Beyond the residential projects he worked on, Williams didn’t shy away from tackling ambitious public and commercial buildings.
He helped design iconic structures like the Los Angeles County Courthouse, the historic Spanish-colonial style YMCA building in downtown LA, and even parts of Los Angeles International Airport.
He was part of the LAX planning and design team, working on some of the most well-known commercial and municipal projects, including the Golden State Mutual Life Insurance Building, Hillside Memorial Park, Westwood Medical Center, and the First AME Church.
Because of his varied portfolio, you might even recognize his handwriting: it’s prominently plastered on the façade of the Beverly Hills Hotel (which he didn’t build, but expanded and renovated throughout the years).
But Paul Williams’ legacy extends beyond the structures he helped build.
He was the first African American architect to become a member of the American Institute of Architects in 1923, and later, in 1957, he was inducted as the AIA’s first black fellow.
Despite the deep prejudice and racism he faced, Williams masterfully navigated the business and social circles of the day.
The LA Conservancy reports that he even learned to draw upside down in order to sketch for clients from across the table — for the benefit of any white clients who might have been uneasy sitting next to an African American.
Williams famously remarked upon the bitter irony of the fact that most of the homes he designed, and whose construction he oversaw, were on parcels whose deeds included segregation covenants barring Black people from purchasing them.
Later in his career, Williams chose to devote more of his time to projects aimed at providing affordable housing; he co-designed the first federally funded public housing projects of the post-war period (Langston Terrace in Washington, D.C.) and later the Pueblo del Rio project in southeast Los Angeles.
It wasn’t until 2017, 37 years after his death, that the American Institute of Architects awarded him his gold medal for the outstanding contributions he made in the world of architecture.
“Our profession desperately needs more architects like Paul Williams. His pioneering career has encouraged others to cross a chasm of historic biases. I can’t think of another architect whose work embodies the spirit of the Gold Medal better. His recognition demonstrates a significant shift in the equity for the profession and the institute.”
William J. Bates, FAIA, in his support of William’s nomination for the AIA Gold Medal, Architectural Digest via Wikipedia
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Homebuilders, whose sentiment hit the midpoint mark of 50 earlier this month for the first-time since July 2022, have yet another reason to celebrate. The sales pace of new homes has also increased for the fifth consecutive month, according to data published on Tuesday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
In April, the sales pace of new homes rose 4.1% compared to March, hitting a seasonally adjusted annual rate of 683,000. On a year-over-year basis, new home sales were up 11.8%.
“Demand for newly built homes has been strong amidst the historically low inventory of existing homes for sale,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement. “This spring, new home sales are a more important part of the market than they would be in a more typical year. In April, new single-family home sales were about 14% of total home sales nationwide. Typically, sales of new single-family homes account for less than 10%.”
While the national inventory of single-family homes is down more than 50% compared to the level in early May 2019, the inventory of new homes for sale at the end of April (433,000 homes) is up 30% compared to the end of April 2019.
However, experts note that the existing home inventory trough won’t last forever.
“The inventory of existing homes is so low because so many people are “locked in” to rock bottom mortgage rates, but the “locked-in” effect should ease somewhat in the coming months,” Sturtevant said. “While rates are not expected to drop significantly, individuals and families who have been putting off moving will decide they have waited long enough. The uptick in new construction will help these more discretionary movers because now they see more options available.”
Although the sales pace increased in April, the median sales price fell slightly to $420,800, compared to $449,800 in March, as builders continued to utilize price drops and incentives to entice buyers.
“The backlog of new construction homes started in the last year or so is making its way online and most builders and projects are offering some incentives to offset affordability constraints,” Nicole Bachaud, Zillow’s senior economist, said in a statement. “This is helping to bump up new home sales at a time when existing home sales are sliding.”
Regionally, the sales pace was up in the Midwest (76,000 homes) and the South (443,000 homes) on a month-over-month basis, with the South recording the larger increase at 17.8%.
The West (140,000 homes) and the Northeast (24,000 homes) fell on a monthly basis, recording decreases of 9.1% and 58.6%, respectively.
On a yearly basis, the Northeast (-46.7%) and the West (-2.8%) again recorded drops, while the Midwest (20.6%) and the South (23.4%) recorded increases.
The great pandemic mortgage refinance boom is most definitely over, but the aftershock is still rippling through the housing market. Homeowners are holding up home sales, as their ultra-low prize is too precious to give up.
During the early days of coronavirus pandemic in 2020 and 2021, mortgage rates fell sharply, and millions of homeowners jumped at the opportunity to refinance. The 30-year mortgage fell down to 2.65% in early January of 2021, according to Freddie Mac data
FMCC,
+1.90%.
The Federal Reserve Bank of New York estimated that 14 million mortgages were refinanced during the “pandemic refinancing boom.”
The surge in refinancing was, in part, due to strong household balance sheets and an increased need for housing, the New York Fed said in a blog post published Monday.
The average homeowner who refinanced saw their monthly payment drop by $220, the Fed said.
The biggest share of mortgages that were refinanced originated from 2015 onwards, the NY Fed. said. Older mortgages, such as those originated before 2010, were the least likely to be refinanced.
Homeowners most likely to refinance their mortgage owed a balance of $400,000 to $500,000 on their mortgage, the NY Fed concluded.
“The mortgage refinancing boom is over, but its impact will be seen for decades to come,” Andrew Haughwout, director of household and public policy research at the NY Fed, said in a statement.
Ultra-low rates have squeezed housing inventory
One of the biggest consequences of the refinancing boom is that would-be homebuyers today are now struggling to find homes for sale.
“The end of the most recent exceptionally low interest-rate period leaves homeowners somewhat disincentivized to sell or change properties,” the NY Fed authors noted.
In other words, homeowners aren’t keen on giving up their ultra-low mortgage rate and selling their home. Not only are rates far higher today, with the 30-year above 6%, but home prices have continued to stay elevated.
New listings — how many sellers were putting up their homes for sale — were down by 16% in early May compared to a year ago, according to Realtor.com.
(Realtor.com is operated by News Corp
NWSA,
+1.55%
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)
“Owners now looking to move will face increased borrowing costs and higher prices, with current home prices being more than 36% higher than they had been pre-pandemic,” the NY Fed said.
Homeowners appear reluctant to sell. Sales of previously-owned homes fell 22% year-over-year in March, according to the National Association of Realtors. New data on April home sales will be released this week.
Many buyers are turning to new builds to find good housing options. New home sales jumped 9.6% in March. One-third of housing inventory is new construction, a deviation from the historic norm of new homes being just 10% of overall housing, the National Association of Home Builders said in April.
And for the mortgage industry, business is likely to be far slower than it was during the pandemic as fewer homeowners are refinancing. The NY Fed said mortgage originations — which include refinanced mortgages — fell sharply in the first quarter of 2023 to $324 billion, the lowest level since 2014
It’s not hard to understand why few are interested in refis: The 30-year was averaging at 6.35% in mid-May, as compared to 5.3% a year ago, according to data from Freddie Mac.
The rise in rates between December 2020 and October 2022 was not just steep, it was historic: Rates rose from 2.68% in 2020 to 6.9% in 2022, the largest swing since the early 1980s, the NY Fed said, citing data from Freddie Mac.
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