By Doug Katz – 9/9/2022
Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation. Not only are mortgage rates rising but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate. Our research indicates that borrowers could save an average of $1,500 over the life of a loan by getting one additional rate quote and an average of about $3,000 if they get five quotes.
Highlights and Takeaways
- The recent temporary respite in increasing rates has ended and this should clearly communicate to potential borrowers that there is a marked difference between short-term and long-term. Vigilance is good until it causes inaction that costs money.
- Sellers are beginning to show more willingness to bend on price as we are seeing more and more price reductions listed properties. The resuming of rates may actually help buyers get a better price as sellers and realtors are well are of the impact of rates on selling.
- More supply could be hitting the market as FOMO is affecting potential sellers. Several real estate platforms reported a triple digit increase in searches centered around selling a home. I can definitely verify that when I sold a year ago, many of my friends gleefully taunted me that I sold too early. Now as the winds are shifting, some sellers are just trying to cut their losses going into an uncertain economic environment.
- Lenders are beginning to roll out new programs designed to recapture buyers who were shut out of the market with the higher rates or who self selected to stop their search based on the monthly payment. Everything from 40 year mortgages to interest only to ARMs are becoming more prominent offerings and initial data shows that they are getting traction with buyers. This also includes some moving forward with higher loan limits ahead of the customary increase announced by the GSEs in January.
- Rate is important and the shopping part of Freddie Mac’s commentary is valid to an extent. Many lenders are also struggling and using price as the primary client acquisition tool while simultaneously downsizing. This can be a dangerous combination as service and execution can become an issue. I recommend shopping both for price AND for a lender who you are comfortable can get the deal done on time and based on the terms that you expected.
- As a side note, do your shopping early in the process and make a decision. It may not be impactful for you, but when you engage a lender, do an application and they provide you what you expected, they expend resources. Resources which are not covered until the loan closes. While “playing the game” may benefit you, it is at the expense of the originator and their ability to earn a living. You do not expect to work for free in your job and you should not expect that from a lender. Be demanding but be fair.