By Douglas Katz – 10/27/2022
From Freddie Mac:
The 30-year fixed-rate mortgage broke seven percent for the first time since April 2002, leading to greater stagnation in the housing market. As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month. In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.
- While this is a significant milestone on the upward climb of rates, it does not have a huge impact on payments. Rates have been in the high 6%’s for a while for good borrowers. Many borrowers with credit scores under 700 were already in that territory. This will have a negative impact on buyer psychology which can be problematic in and of itself as it will further negatively shape buyer behavior.
- The likely trend is still up. There may be small respites to this but expectations should be for the trend toward higher rates. As I always preach, stay informed and adjust assumptions regularly.
- The end of cycle program innovation arms race has begun. With a much smaller pool of buyers, lenders try to adjust or create programs that better match and maximize the market. I recommend exploring these. For years, the traditional 30-year fixed has been the coin of the realm, but that is changing. There are some great new programs that all buyers should check out to see if they can get a better deal.
- Fannie Mae and Freddie Mac have also gotten in on the action with adjustment to their pricing and programs. One recent announcement was regarding reduction in the Loan Level Price Adjustments (LLPAs) for their programs. In short, many of the affordable lending and first time homebuyer programs are now even more affordable as the add-ons to price have dropped, The agencies also announced some changes to credit evaluation and income documentation, but those will take longer to reach the consumer, but regardless, this should bring hope for some relief to offset the market.
- The lender shuffle is now underway where loan officers are moving due to companies downsizing, disappearing or falling short on pricing and/or service for their clients. Buyers and realtors should be on the lookout for changes in their providers and referral partners as they may find themselves now working with someone not of their choosing if a a change happens.
- Lock-and-shop programs are becoming more prevalent. These are great, but they also come with very restrictive timelines. I am hearing about more and more clients who outrun the allotted time and are, as a result, no longer guaranteed a certain rate. If you are in one of these programs and you do not know what the timeline requirements are, you need to find out ASAP. While you may not want to change horses mid-stream, you may have to to secure an affordable rate when this occurs,
- Finally, broken record time regarding divorce. DO NOT WAIT TO SEE WHAT YOUR SITUATION IS AND HOW THE MARKET IMPACTS YOUR ASSUMPTIONS! Yes, I am yelling this from the top of a mountain because I see the fallout of not doing so on a regular basis and it is rarely good. I have been literally unable to do something for desperate divorcing homeowners when they wait until the end. We have been in a rate trough for so long that people have forgotten or chose to ignore the new reality. I recommend that all divorcing clients determine the bounds of their capabilities so that they can accelerate any timelines if needed.
I always end with a reminder that we have discounts available for veterans, first responders and law enforcement. Make sure that you check out the section of the page covering our commitment to those who served with discounted mediation services. My lending partner also offers a discount as well, so if your buying or refinancing check it out