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Tag: mortgage interest rates

Castles in the Sand

Adjustable rate mortgages right for some

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Less than a month ago, around the middle of July, I reported that the 30-year fixed rate mortgage loan interest rate was nearing 6%. It never went over 6%, but instead started dropping back down. As of July 15, the average 30-year fixed rate according to Forbes was 5.86% and the average 15-year fixed rate was 4.97%. It may not appear to be a big difference in interest rates, but when you convert it into actual money at the elevated prices of homes, it makes a difference.

The typical U.S. family will spend an additional $400 on their mortgage payment each month than they would have in January, according to the Federal Reserve Bank. It could be the difference between qualifying for a mortgage, not qualifying or looking for a less expensive property, either way, the average prospective homeowner is affected by the rate fluctuation and is likely watching the daily activity closely.

To help fill the gap for some borrowers, the interest rates of adjustable rate mortgages (ARMs) are increasing. The Mortgage Bankers Association indicated there was a 3% increase in people applying for ARMs since January.

The popularity of the adjustable rate mortgage peaked in 2009, helping to create the financial crisis. This was because ARMs carry a lower interest rate than fixed-rate mortgages at the beginning of the loan, then they adjust at regular intervals based on one of several indexes. This allowed lenders to make loans with ultralow teaser rates to subprime borrowers who, when the rates went up, could not afford the new payment and ultimately let their houses be foreclosed.

Although ARMs certainly have their place in the real estate world, we don’t want to go back to those years. It can be a good option as fixed rates increase to help buyers qualify for a mortgage with the hope of being able to refinance at a later time if the rates go down. The risk in this is the temptation to buy too much house that will end up being too expensive down the road. This was part of the fallout of the financial crisis.

It’s also a good option for buyers who may not plan on owning the property long-term or who are confident their income will increase enough to keep up with mortgage rates as they adjust. The calculation is whether the monthly payment savings with an adjustable-rate mortgage is worth the risk of increased rates.

Don’t let someone talk you into this just because you are crazy anxious to get into a home. Understand the complications and risks associated with an ARM, do the math and avoid being enticed by pricey upgrades just because you realize you will actually qualify for them.

On July 26, the Federal Reserve has its next meeting and it is rumored that the prime rate will increase by 0.75% again this month. My guess is a couple of months from now, buyers may be wishing they can get a 6% rate.

So, we’ll wait and see what effect, if any, that has on the daily rates.

Castles in the Sand

Are you noticing the mortgage interest rates?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

My April 20 column was titled “The end of an era,” the era being one of ultra-low mortgage interest rates. In that column I reported that the current average mortgage interest rate was 4.72%, a rate that was probably already a week old.

Now, only a month later, the average interest rate is 5.42%, likely hovering just above 6% after the most recent Federal Reserve rate hike of half a percent. When the rate hit 5.27%, it represented a 13-year high.

So far, the country in general has not seen a slowdown of the surge in home prices, according to the National Association of Realtors. Quite the contrary, many buyers are trying to lock in purchases before the rates climb even further, which Realtors can guarantee they will, continuing to push selling prices up and up.

So, what does the average potential home buyer do in this real estate environment? Mortgage interest rates are going up almost weekly. Inventory is being depleted with everyone rushing into the market before the rates go up even more. Sellers are taking advantage of the increase and the anxiety of buyers to do tough negotiating and/or increase their asking price.

Many buyers are just dropping out, renewing their leases, moving in with family and waiting for the insanity to end. Others who can afford it aren’t giving up. Some are opting to pay fees to secure lower rates in the form of rate lock-in agreements. It’s not unusual for the typical 60-day lock-in to expire before the buyer finds a property, putting them in the position to extend the lock-in, costing – of course – more money. Others are adding cash into the transaction so they can qualify for a lower mortgage amount making up for the higher rates.

In addition, adjustable-rate mortgages are starting to come back starting under 4% for now. This new generation of adjustable-rate mortgages are more closely regulated than the ones that helped to create the financial crisis. At that time, low teaser rates attracted buyers and then after a year or two went up so high many homeowners couldn’t afford the increase. Now lenders can’t offer short-term rates and lenders are required to have caps on how much the rates can increase. Nevertheless, borrowers still need to be careful when going into a variable rate mortgage, since not knowing what your mortgage rate will be down the road is still a risk.

Most real estate economists still think that home prices will come down by the end of the year because of the higher mortgage interest rates. However, all real estate is local, and Manatee County is such a specialized area with a high percentage of cash buyers, increasing mortgage rates will have less of an effect.

Even if you’re not in the market for a new home, increasing rates influence the entire real estate market. It’s important to pay attention to the rate increases which could at some point have an impact on the value of your home proving the economists right.

At the end of 2021, the average rate on a 30-year, fixed-rate mortgage was 3.1%; by the time this column is in print it could very well be at 6%. It appears mortgage interest rates keep creating new eras every couple of months, enough to make a homebuyer’s head spin.

Castles in the Sand

The end of an era

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

It’s so sad when eras end. We had the end of the hard-wired phone and even though you can still have one, no one will admit it. We had the end of the standard-shift car. The end of the manual typewriter – ask a 12-year-old what that was – and now we have the end of the ultra-low mortgage rates.

About a month ago, the Federal Reserve voted to lift interest rates. In addition, they sent the message that they would have six more increases by year’s end. This is the most aggressive increase in more than 15 years, all geared to slow inflation.

And the feds weren’t kidding. Recently, a 30-year, fixed-rate home loan edged higher to 4.72% from 4.67% a week earlier and now stands at 5%. Freddie Mac said these weekly figures were the highest since December 2018.

Over the past three months, the rate has increased by 1.5%, the quickest three-month increase since May of 1994. At the start of this year, the rate for the typical home loan was 3.22% with a record low of 2.65% in January. For half of 2021, the rate remained under 3%.

Unfortunately, these rate increases translate into real money for potential home buyers, especially those on the margin. Assuming a 4% mortgage rate – which you can’t even get now – a $375,000 home with an interest rate of 4% has a monthly mortgage payment $220. This is higher than the payment on a similar-priced home would have been in December 2020 when the rates were near record lows.

Lawrence Yun, chief economist for the National Association of Realtors, said buyers are not giving up and they believe rising interest rates could be the last chance to get in the market. Nevertheless, higher rates eventually could lead to a 10% decline in home sales this year compared to 2021. We’re already seeing this in our local market based on February’s Manatee County sales statistics. He also points out, however, that a low supply of homes does not mean a decline in housing prices. Sale prices will likely continue to increase, responding to the lack of inventory.

Several months ago, I did some research on Freddie Mac’s website, where they listed the average mortgage rates starting in 1972. At that time, I pointed out that what we’re experiencing now is not only historically low, it never happened before 2012, when the rates started dipping below 4%.

The point I’m making is things really aren’t that bad. It may look terrible to 30-somethings, but maybe they should have a conversation with their parents or grandparents who were living through 13% and 16% rates in the early 80s. Of course, nobody wants to go back to that, but I think the Feds have their eye on 6% before they’re done. Let’s hope it levels off at that point, but who knows?

Out of all the ends of eras I’ve experienced in my life, the one I don’t miss is the end of poodle skirts. But the poodles don’t compare to what we’re going through now, something that affects every homeowner in the country and those who want to be homeowners. We’re not even close to being done according to the Federal Reserve – the end of another era.

Castles in the Sand

Merry mortgage rate Christmas

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

It’s Christmas, and many of us in the country are spending the day much quieter than in years past. We can only hope that the vaccine they have promised us will bring our world back to normal and next Christmas will truly be a time to celebrate. But there is still much to be celebrated, and historic low mortgage rates may very well be at the top of Santa’s list.

The 30-year fixed-rate mortgage fell below 3% in July and stayed there. On Dec. 10, the 30-year fixed rate hit a low of $2.71%. So far, the low rates are holding steady at between 2.5% and 3%, but there are signs that those rates may not hold into the new year, so there is a lot of scrambling around to lock in this month.

According to industry research firm Inside Mortgage Finance, during the first nine months of the year, lenders extended $2.8 trillion in mortgages. And it didn’t slow down in the last quarter of 2020 with a predicted volume exceeding the prior record of $3.7 trillion in 2003. It is forecasted by industry firms that more than 9 million homeowners saved money by refinancing this year.

Like so many other byproducts of the COVID-19 pandemic, home lending has surged, producing record low interest rates. With the economy seriously impacted by the pandemic, homeowners were looking to lower their monthly payments or pull some equity out of their homes for needed renovations. The timing was perfect, with homeowners having the time to work through the documents required for a mortgage refinance, and the mortgage industry more than willing to find a way to do paperwork and closings digitally to accommodate homeowners.

However, if you haven’t done a refi or a new mortgage since the financial crisis, the Dodd-Frank Consumer Protection Act enacted in July of 2010 may be a bit of a shock. There are pages and pages of disclosure forms for the borrower to read and agreed to. Fortunately, they are all available digitally and every lender is doing their best to get this required information out to their clients as quickly and easily as possible. Still, don’t be surprised if you feel your eyes starting to cross halfway through.

In addition to homeowners taking advantage of low interest rates, many are moving, as we’ve reported before. Leaving cities to work virtually in the suburbs has been an ongoing trend for white collar professionals who are requiring more space indoors and outdoors resulting in a demand for more expensive homes. According to the National Association of Realtors, nearly one in four homebuyers between April and June bought houses priced at $500,000 or more. This is up from 14% of buyers during the preceding nine months.

And, if you’re a renter, that’s going to cost you more as well. In September, single-family home rentals climbed an average of 3.8% from a year earlier across 63 markets in the country. This increase is being accelerated for the same reason that buyers are moving, leaving cities for suburbs and wanting more space.

Wishing everyone happy holidays and good health. Hopefully, this will all be over soon; stay safe.

Castles in the Sand

Mortgage interest rates lowest since 1971

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Based on current interest rates, it’s a great time to buy a home, and it’s also a great time to sell a home. At this moment in time, sellers have the upper hand, prices are high, inventory is low and buyers are chomping at the bit to buy while interest rates are historically low.

The mortgage interest rates are so low that as of this writing they’re actually the lowest ever recorded by Freddie Mac since 1971, coming in at 3.23% for a 30-year fixed-rate loan. On Bankrate.com, I found an average rate of 3.01%. Remember that rates fluctuate daily and also depend on a buyer’s creditworthiness as well as the amount of down payment and points applied.

The drop in interest rates started in March and continued in April after the country was shut down because of the coronavirus. In March, the rate was about 4.2%, a full point higher than is typical now. Now the conversation from the financial talking heads is that the rates may stay low forever or at least for the foreseeable future until the country totally recovers from the financial impact of the virus. Needless to say, lenders are overwhelmed with applications, giving them the leverage to pick and choose.

Refinancing has also been strong, with homeowners attempting to lower their monthly rate during difficult times and/or pull cash out to help with expenses or attack those long overdue home improvements.

The problem is the banks are reserving their best rates for homebuyers – not homeowners who want to refinance. To make that situation even worse, Freddie Mac levied a new fee on lenders for most refinancing to protect them from potential losses; remember the 2008 housing bubble. Refinance rates even make a difference if the borrower just wants a straight refinance to lower their monthly payment or wants to pull cash out, which would typically have a higher rate.

Since mortgage interest rates have a direct effect on real estate sales, let’s take a look at the August sales numbers from the Realtor Association of Sarasota and Manatee website.

First of all, both Manatee and Sarasota counties broke another record for the median (half above and half below) sale price of single-family homes; Manatee at $360,000 and Sarasota at $330,000.

Manatee County single-family homes closed 9% more properties than August of last year. As stated, the median sale price was $360,000, which is up 13.6% from last year, and the average sale price was $480,903, 17.7% up from last year. Median time to contract was 30 days; last August it was 42 days. The month’s supply of available properties was 2.1 months; last year it was 3.3 months.

Condo sales were up 54.2%, the median sale price was $223,000, up 8.8% from last year. The average sale price was $261,548, up 4.1% from last year. Time to contract was 46 days; last year it was 50 days. The month’s supply of available properties was 3.3 months; last year it was 3.6 months.

Great numbers for property owners and sellers, but I’m still worried about the lack of inventory here and across the country. Record low interest rates and a change in lifestyle created by the coronavirus has accelerated the demand for properties. In the meantime, we can all enjoy the real estate wave. Stay safe.