Mortgage rates will flatline from Q1-Q3, dropping substantially in Q4
By JEFF LAZERSON | firstname.lastname@example.org | MortgageGrader.com | December 27, 2022
Article originally posted in Orange County Register on December 22, 2022.
Good news for 2023. We’re not going from home price boom to bust like the mortgage meltdown days of the Great Recession.
Bad news for owners and sales agents: Home prices soften across California and the U.S.
Watching the weekly Freddie Mac fixed mortgage rate survey will be as exciting as watching paint dry over the first three quarters of 2023. Rates will largely stay as they are but dip in Q4.
Stagflation will be public enemy number one. That is a combination of high inflation and economic stagnation. Wage pressure, utility costs and grocery prices are as high as the mountains. Check that against diminishing consumer savings, soon-to-be spiking unemployment and always higher taxes, plus we’ll see much less consumer confidence. Hence, economic stagnation.
Here are my 2023 predictions:
1) Median Southern California home prices (Los Angeles, Orange, Riverside and San Bernardino counties) will fall 10%.
2) The Freddie Mac 30-year fixed rate mortgage will average 5.875%. By the end of the year, we’ll see the 30-year at 5.25%.
3) The Freddie 15-year fixed will average 5%. By year’s end, the 15-year will be at 4.25%.
4) Mortgage loan volume for home purchases and refinances will decline to $1.8 trillion from this year’s estimate of $2.3 trillion by Black Knight. We’re down a staggering 47% in 2022 from the $4.35 trillion originated in 2021. Few will refinance as almost everybody is sitting at a 3% or even lower fixed rate. Mounting unemployment will mean only the brave will consider trading up on a home with the headwinds of softer home prices and mortgage rates double what they’re likely sitting on. First-time buyers will be all the rage.
5) California will see 90% of homebuyers financing their purchases. That’s compared with 84% this year, according to Black Knight. Cash investors and home flippers will be largely absent in 2023.
6) Wall Street’s prime rate will top out at 8.25%. Prime started 2022 at 3.25%. It’s currently 7.5%.
7) The Federal Housing Administration will decrease the upfront FHA mortgage insurance it charges to 1.1% from its current 1.75%. The monthly mortgage insurance premium will drop to 0.50% compared with its current 0.85%.
8) Nationally, home purchase sales transactions will decline 25% compared with 2022. Sales plunged 35.4% in November 2021, according to the National Association of Realtors.
9) The California Association of Realtors Referral Fee Agreement will be amended, adding the principal’s acknowledgment (the principal is the agent’s client, either a homebuyer or home seller) when a Realtor agrees to pay a referral fee to a real estate broker for the lead. Currently, there is no place for the principal’s acknowledgment even though California law requires disclosure.
My predictions for 2022 were abysmal…
1) The Freddie Mac 30-year fixed rate will average 3.375%. In fact, it averaged 5.32%.
2) The Freddie 15-year fixed will average 2.625%. It averaged 4.56%.
3) The median home price for Los Angeles, Orange, San Bernardino, and Riverside counties will increase 8%. Through October, median home prices increased 12.95%, according to CoreLogic.
4) The regional home sales volume for those same four counties will be flat. Sales were down 19.2%.
5) California home sales volume will increase 5%. The California Association of Realtors in October projected single-family home sales in the state would total 359,200, down 19.2% from the previous year (2021).
6) Prime rate will increase to 4%. The prime rate actually increased to 7.5%.
7) Mortgage funding volume for purchases and all refinances will be $3 trillion. Black Knight expects total volume to be $2.3 trillion.
8) The Federal Housing Administration will decrease FHA mortgage insurance. In fact, FHA mortgage insurance remains unchanged.
9) The federal government won’t have any new COVID-19 mortgage payment forbearance programs. Nor will there be any new eviction moratorium programs in California. No new programs came from the federal government or California.
Freddie Mac rate news: The 30-year fixed rate averaged 6.27%, 4 basis points lower than last week. The 15-year fixed rate averaged 5.69%, 15 basis points higher than last week.
The Mortgage Bankers Association reported a 0.9% mortgage application increase from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $1,400 less than this week’s payment of $4,481.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.375%, a 15-year conventional at 5.125%, a 30-year conventional at 5.75%, a 15-year conventional high balance at 5.625% ($726,201 to $1,089,300), a 30-year high balance conventional at 6.375% and a jumbo 30-year fixed at 6.875%.
Note: The 30-year FHA conforming loan is limited to loans of $562,350 in the Inland Empire and $647,200 in LA and Orange counties.
Eye catcher loan program of the week: A 30-year jumbo, locked in for the first five years at 5.25% with 0.75-point cost.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or email@example.com. His website is www.mortgagegrader.com.
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Jeff Lazerson - Mortgage Columnist since 2011