By Doug Katz – 9/23/2022
From Freddie Mac
The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield’s jump to its highest level since 2011. Impacted by higher rates, house prices are softening, and home sales have decreased. However, the number of homes for sale remains well below normal levels.
Highlights and Commentary
- The Fed raised rates again this week and the market reacted. The reaction was not just from the actual bump but also from market sentiment that the Fed is committed to inflation control and with that comes adverse impact to other part of the economy. Mortgage rates and housing will be collateral damage, so expect bumpy times ahead.
- Housing inventory continues to be stubbornly low. Builder sentiment is still in the dumps and sellers are holding off because they do not want to accept the reality of lower values and with tight inventory, they are now concerned about what they can buy post sale. Additionally, many are very attached to the low rates they got in the last refinance boom and they are doing everything possible to stay in the low payment that the low rates afford them.
- Home Equity Lines of Credit (HELOCs) have become popular again, especially with the aforementioned homeowners. Some of this may be a point of concern as families get squeezed financially, they often tap equity to maintain their lifestyle. This could be an issue if we end up in a down cycle for too long and especially if households get hit with the layoffs that are beginning to increase and move beyond housing and real estate.
- There is and definitely should be concern about the cash flow and debt for many households. During the last few years, desperate buyers paid a lot for homes and often pushed their finances to the top allowable debt ratio in hopes that this will improve over time. The problem is that inflation, higher interest rates on credit cards and other short-term debt and the possibility of decreased household income from potential layoffs could tip these households above a sustainable number. This will increase delinquencies and possibly increase default and foreclosures. In short, this is going to likely hurt a lot and families should be doing everything they can to adapt and ride out the storm.
- The last bump in rates was profound with many rates now 0.25% or more higher than the rates yesterday. Yes, rates can and do jump by large numbers during the day in volatile times. For anyone looking at buying or refinancing, it is time to re-assess.
- For buyers, I have been saying repeatedly to review assumptions to ensure that their reality matches their actual capabilities. Many buyers will find they have lost some purchasing power and they need to readjust what they are looking to buy. Some may find that they are no longer pre-approved at all. If you are a buyer, talk to your lender ASAP to see how this impacts you.
- For homeowners looking to refinance, much of the opportunity has passed. The only refinance scenarios with any continues relevance are the have to refinances, such as divorce, where a court order required one. Since the requirement is typically time based, these homeowners have a deadline. Procrastination is a typical phenomenon in these situations which is fine save for rate rising environments, like now. Waiting can and may have already made some of these plans impossible to execute. Add to that decreased values and you now have scenarios that are completely different than those upon which the agreements were made. If this is you or anyone you know, they need to chat with a lender as soon as possible to see what can be done.
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