By JEFF LAZERSON | firstname.lastname@example.org | MortgageGrader.com | April 17, 2023
Article originally posted in Orange County Register on April 13, 2023.
Follow the bouncing rates, if you can.
On April 13, Freddie Mac rates improved for the fifth consecutive week, dropping to 6.27%.
The 2023 year-to-date Freddie low was 6.12% back on Feb. 12. The year-to-date high was 6.73% on March 9.
Well-qualified California homebuyers can find a 30-year fixed as low as 5.375% with 2 points cost.
Freddie Mac, by the way, no longer reports borrower points paid on its weekly lender survey.
In my experience, California mortgage rates have always run lower than Freddie’s national average as the state tends to have higher loan balances (more real dollars earned by lenders for higher loan balances), and the state accounts for about 20% of the nationwide mortgage volume.
Mortgage rates below 5% on a 30-year note are getting closer. But don’t count your chickens just yet as the inflation threat continues to loom.
The Fed’s ideal inflation target rate is 2%. On April 12, the U.S. Bureau of Labor Statistics reported the year-over-year Consumer Price Index in March was 5%. The cost index for shelter was by far the largest contributor to the monthly all-items increase, according to its press release.
Let’s step back. Silicon Valley Bank and Signature Bank, two mid-sized banks, failed right before the last Federal Reserve meetings on March 21-22. Instead of rates rising by one-half point, the benchmark and subsequently the prime rate rose just one-quarter point. The prime rate hit 8%. The Fed will likely raise its rate another quarter percent at its May 2-3 meeting, which means the prime rate will creep up to 8.25%.
While the prime rate directly affects credit card interest rates, auto loans and home equity lines of credit, it indirectly affects 30-year mortgage rates. Mortgage rates tend to rise with a higher prime rate as to attract new investors in mortgage-backed securities (to pay a higher yield).
What about last year?
Freddie rates reached a yearly low of 3.22% on Jan. 6, and the yearly high was 7.08% on Nov. 11 and Oct. 27.
After wiping my crystal ball down with some Windex, I see mortgage rates bouncing around like a pinball machine for the next several months. I also see a recession coming by the fourth quarter. And I see the 30-year mortgage hitting sub-5% with 2 points by Jan. 2024.
On a personal note, business is increasing a wee bit. I experienced a small spurt of first-time buyers going into escrow last week.
“Prospective homebuyers this year have been quite sensitive to any drop in mortgage rates, and that played out last week with purchase applications increasing by 8%,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
As it concerns home purchases in the near term, inventory constraints will buoy any hard price drops. Everybody seems to believe (me included) that home prices will come back around even if they drop further.
Don’t be afraid to buy now so long as you don’t plan on selling the property for several years. Look no further than the Great Recession for anecdotal evidence of home price sustainability.
Refinancing to a lower mortgage interest rate is a simple cost-benefit math formula. Refinancing for cash-out requires more eyeballing between a new first and a home equity line-of-credit for example.
Freddie Mac rate news: The 30-year fixed rate averaged 6.27%, 1 basis point lower than last week. The 15-year fixed rate averaged 5.54%, 10 basis points lower than last week.
The Mortgage Bankers Association reported a 5.3% mortgage application increase from last week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $583 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 5.625%, a 15-year conventional high balance at 5.625% ($726,201 to $1,089,300), a 30-year high balance conventional at 6.125% and a jumbo 30-year fixed at 6.25%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.
Eye catcher loan program of the week: A 30-year conforming fixed rate at 5.375% with 2 points 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