Per Freddie Mac:
Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year. The combination of rising rates and high home prices is the likely driver of recent declines in existing home sales. However, in reality many potential homebuyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity.
Some key takeaways:
- This is now definitely a trend, so for the foreseeable future, plan on a steady rise. I would note that as of writing this, rates retreated at week’s end. While this is a great opportunity, I would be weary of expecting a trend reversal. If in a deal with a set closing date and a floating rate, I would lock. If locked and your lender offers a float down or renegotiation, you may want to explore that option.
- The housing market is beginning to react to the rate environment. There are already a ton of articles written about the reduction in price for a good part of the housing inventory and that inventory and time on market is creeping up. In addition, I am anecdotally hearing from realtors and buyers that they are getting more cooperative sellers. For the buyers who can overlook the rate jump and who are deliberate in the search, there may be decent opportunity.
- If house shopping and you have not already done so, you must, must, must revisit your assumptions and get a new letter. Make sure that the new reality matches your personal budget and that the loan with the new assumptions can be approved.
- If selling, be cognizant that your leverage may be waning. I spoke to a client this week who made reasonable requests, at least reasonable for any normal market, of a seller. The initial feedback was tepid and the borrower referenced other available homes in the area which were also on the market and that it was not out of the question that he would walk. This was unheard of just months ago.
- The mortgage world is beginning to see substantial layoffs. This is the canary in the coalmine for where lenders think things are headed. I have been doing this for over two decades and have been through many cycles. While some are sharper than others, every cycle brings with it a large contraction in the lending industry as demand drops. They don’t do this on dips, but rather on trends and data driven forecasts. Not only does this mean that your choices are dropping, but that you could also see issues with execution as the lenders adjust to the current operational tempo and their adjusted staffing levels.