30-year fixed mortgage hits 6.29%, double last year’s average

Monthly payments on conforming loans are up $1,315, or 49%, from a year ago.

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | September 26, 2022

* Article originally posted in Orange County Register on September 22, 2022

It doesn’t matter if you’re shopping for a first mortgage or a home equity line-of-credit.

Borrowers of every stripe took a beating as Freddie Mac’s 30-year fixed rate rocketed up 27 basis points to 6.29%, and the prime rate jumped three-quarters of a point to 6.25%.

Both barometers are at their highest levels since 2008 following the Federal Reserve’s short-term rate hike on Wednesday, Sept. 21.

If you were to take out a $647,200 mortgage today (Freddie Mac’s maximum conforming loan amount), your principal and interest payment would be $4,002. One year ago, the Freddie average rate was 2.88%, offering a principal and interest payment of $2,687.

That’s $1,315 more per month, or a payment jump of 49%.

Mortgage rates have doubled since the start of the year, the steepest and swiftest rise in Freddie Mac’s 51-year-old rate survey. The only increase surpassing that was a four-year run at the end of the Carter administration, when rates soared from under 9% in the fall of 1977 to 18.6% in October 1981.

One could argue the cost of homeownership is up nearly 50% from a year ago if you include the state’s annual 2% property tax increase. That compares with the current 8.3% U.S. annual inflation rate. Cost crushing indeed.

Plenty of my shops’ pre-approved borrowers, especially first-time buyers, are heading for the hills. Lots of homeownership angst between lofty rates and lofty prices. They want to wait it out for a year to see what happens.

Median home prices may not hit the hard skids though. It’s unlikely we will see a collapse like the Great Recession and the 2008 mortgage meltdown. The job market is still very hot. The inventory level of homes for sale is still very tight.

“The labor market is still very strong, adding 315,000 jobs last month,” said Raymond Sfeir, economic research director at Chapman University. “There were 11 million job openings last month. That’s huge.”

The number of homes coming on the market are way down. New listings in Southern California are down 22% from the average for the three years preceding COVID, according to Steven Thomas, author of Reports on Housing.

Normal expected market time – or the time it would take to sell all the listings at the current sales pace — is 90 to 120 days. Currently, it is 74 days in Southern California – still low, but more than double the 33 days a year ago, Thomas’ figures show. That should translate into a market correction, but not a rout.

“Inventory has already peaked for the year,” said Thomas. “Prices will be down slightly through the end of the year.”

“The sky is not falling,” added Jordan Levine, chief economist at the California Association of Realtors. “The market is rebalancing. (California) prices are going down a little bit next year. Statewide, it will be a modest single digit drop.”

This could be bad news for moving companies, agents, escrow officers and mortgage lenders since most borrowers in America took advantage of lifetime low mortgage rates during and because of the pandemic’s shock to the economy, with rates falling to an all-time low of 2.65% in January 2021.

Eighty-nine percent of U.S. borrowers have mortgage rates below 5%, while two-thirds of all borrowers have rates under 4% and a fourth have rates under 3%, according to Black Knight.

And, for California property owners, moving means more in property taxes as well.

So, where are mortgage rates headed in the near term? Even higher.

Sfeir, Levine and Thomas see fixed rates hitting about 6.5% through the end of the year. Levine expects rates at 7-7.5% next year.

Sfeir sees two more short-term rate increases of one-quarter to one-half percent at the Fed’s November and December Fed meetings. Mortgage rates are influenced by the Fed’s moves but don’t move in concert with them.

“Inflation has peaked, but it’s still on the high side,” he said.

This is the opportunity for first-time buyers with little down. You can get in now. You can refinance when rates drop in a year. So long as you don’t plan to sell within five years or less, your home value will be safe.

Freddie Mac rate news: The 30-year fixed rate averaged 6.29%, 27 basis points higher than last week. The 15-year fixed rate averaged 5.44%, 23 basis points higher than last week.

The Mortgage Bankers Association reported a 3.8% mortgage application increase from the previous week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was $1,315 less than this week’s payment of $4,002.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: A 30-year FHA at 6%, a 15-year conventional at 6.125%, a 30-year conventional at 6.375%, a 15-year conventional high-balance ($647,201 to $970,800) at 6%, a 30-year conventional high-balance at 6.5% and a 30-year purchase jumbo at 5.875%.

Eye catcher loan of the week: A 30-year jumbo mortgage with interest-only payments locked at 5.75% for the first seven years without points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.

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Jeff Lazerson - Mortgage Columnist since 2011