The Lending Coach and Finance of America Mortgage are proud to present a special virtual event featuring mortgage and housing expert Barry Habib on Wednesday, April 6th. He will be discussing where the housing market’s heading in 2022.
In case you are unfamiliar, Barry Habib is a real estate and mortgage industry executive, bestselling author, and founder and CEO of MBS Highway. Barry is also a well known media resource and TV commentator on the mortgage and real estate markets.
He has recently been named America’s top real estate forecaster by Zillow and Pulsenomics®.
Join us to learn all about housing rates, recession, and how to be best prepared to serve your borrowers this year!
Wednesday – April 6, 2022 at 10:00 a.m. PDT:
As a professional in the real estate industry, you know that interest rate fluctuation and real estate pricing can be a challenge to predict.
Stay ahead of your competition and find resources to help you become a trusted advisor to buyers and borrowers in your community in this rapidly changing environment.
Barry will discuss his predictions for the housing market going forward in 2022 and the benefits of utilizing this system to show clients and referral partners the power of homeownership.
Mortgage interest rates just keep moving higher. They have risen nearly 1.5% points since January 3rd… and it seems like almost every day rates move up again.
The outlook for lower rates isn’t great right now, thanks mostly to the Federal Reserve’s handling of the money supply and out-of-control inflation.
How will the Fed’s recently announced quarter point hike to the Fed Funds Rate affect mortgage interest rates? The answer may surprise you.
The Federal Reserve
The Fed Funds Rate is not the same as a mortgage rate because it can change from one day to another, while mortgage rates can be in effect for 30 years. More on that here….
Mortgage rates are primarily driven by inflation, which erodes the buying power of the fixed return that a mortgage holder receives. When inflation rises, lenders demand a higher interest rate to offset the more rapid erosion of their buying power.
You probably know that inflation has been rising significantly of late, and as a result, so have mortgage rates. Inflation is pushing 9%, the highest level we’ve seen in over 40 years. This has moved mortgage rates into the mid 4% range this week.
Essentially, The Federal Reserve has bungled their management of inflation and now have to make severe changes to offset the damage. This brings market instability and increased mortgage rates.
When the Fed hikes rates, they are trying to slow the economy and curb inflation. If successful in cooling inflation, mortgage rates will decline. History proves this during rate hike cycles for the past 50 years. Unfortunately, this isn’t an overnight fix.
Federal Reserve Chairman Jerome Powell
However, the Fed may also reduce its holdings of Mortgage Bonds, which can cause some interest rate volatility. And if inflation continue to surge, the Fed might not be able to do much to help. The situation isn’t great at this moment.
30-year fixed mortgage rates
The average 30-year fixed-refinance rate is 4.53 percent, up 20 basis points over the last week. A month ago, the average rate on a 30-year fixed refinance was lower, at 4.17 percent.
At the current average rate, you’ll pay $503.13 per month in principal and interest for every $100,000 you borrow. That’s $7.08 higher compared with last week.
Mortgage Rates and Treasury Yields – a great barometer
Fixed mortgage rates and Treasury yields tend to move together because fixed-income investors compare the returns they can get on government and mortgage-backed securities.
Investors compare yields on long-term Treasuries to mortgage-backed securities and corporate bonds. All bond yields (including mortgage backed securities) are affected by Treasury yields, because they compete for the same type of investor.
Mortgages, in turn, offer a higher return for more risk. Investors purchase securities backed by the value of the home loans—so-called mortgage-backed securities.When Treasury yields rise, investors in mortgage-backed securities demand higher rates. They want compensation for the greater risk.
You can see the rise in the 10-year treasury yield here…and mortgage rates have been following a nearly identical course over the last 3 months.
What Really Causes Rates to Rise and Fall?
Mortgage rates are determined by a complex interaction of economic factors, such as the level and direction of the bond market, including 10-year Treasury yields; the Federal Reserve’s current monetary policy, especially as it relates to funding government-backed mortgages; and competition between lenders and across loan types.
Because fluctuations can be caused by any number of these at once, it’s generally difficult to attribute the change to any one factor. Although in our current situation, inflation (and the Fed’s mismanagement of it) is the number one cause. When this is coupled with the large increase in government spending, you see a double dose of fear in the markets.
In today’s case, the Federal Reserve has been buying billions of dollars of bonds in response to the pandemic’s economic pressures, and continues to do so. This bond-buying policy (and not the more publicized federal funds rate) is a major influencer on mortgage rates.
On March 16, the Fed announced that it expects to begin reducing its balance sheet in May, meaning it will start reducing the overall amount of bonds it owns. This will be on top of its existing move to reduce new bond purchases by an increment every month, the so-called taper, which began in November.
Most experts agree that this “taper” will also move treasury yields and mortgage rates higher.
Moving Forward
There may come a point when mortgage rates drop back down and borrowers can enjoy some of the remarkably low rates they were available from mid-2020 through late 2021.
And throughout 2022, we could have periods when rates dip to some degree.
But for the most part, borrowers may need to come to terms with the fact that the days of record-low borrowing are behind us.
With that said, it’s important to put today’s rates into perspective. Compared to the rates we saw from mid-2020 through the end of 2021, the rates above look high. But historically speaking, locking in a 30-year mortgage anywhere in the 4% range is not a bad deal at all.
Would you like to find out more? Contact me to discuss your current situation and how you might be able to take advantage of today’s market. It would be my pleasure to help you!
It’s been a wild ride for mortgage rates so far in 2022.
Since January 3rd, rates are up nearly a full percentage point.
The most recent reading of 7.5% inflation, coupled with the Federal Reserve’s statements of rate hikes and balance sheet reduction have really impacted the bond markets, including mortgage-backed securities and mortgage rates in general.
When you couple that with the Federal Housing Finance Agency increasing it’s mandatory fees for financed 2nd home transactions and extremely tight housing inventory here in the west, it’s a bit of tough sledding out there right now for would-be borrowers.
To put this in perspective, mortgage rates are now where they were in May of 2019.
Let’s take a look at the reasons…
Inflation and Mortgage Rates
Inflation in the United States picked up its pace once again, accelerating to an annual 7.5 percent in January, the highest rate in 40 years and above analysts’ expectations, according to data released by the Bureau of Labor Statistics (BLS).
January’s acceleration in the Consumer Price Index (CPI), which reflects inflation from the perspective of end consumers, marks the eighth straight month of prices rising faster than 5 percent year-over-year and a faster pace than December’s 7.0 percent pace.
Per Tom Ozimek of the Epoch Times: “Not only is January’s annual pace of CPI inflation the highest since February 1982, when it hit 7.6 percent, it is also far above the Federal Reserve’s target of 2 percent as reflected in a separate but related inflation gauge, pressuring policymakers to tighten loose monetary settings to knock some of the wind out of surging prices.”
When inflation rises, the value of mortgage-backed bonds decreases. This causes these bonds to become a less attractive investment. So, interest rates must rise to keep investors buying. Higher rates on mortgage bonds translate to higher consumer mortgage rates…and that’s what we are seeing today.
The Federal Reserve
Federal Reserve Chairman Jerome Powell
Markets are in a state of increased nervousness as the Federal Reserve is changing its focus to a much tighter stance. Fed leaders have failed in their assessment that the inflation we are seeing is “transitory”…and are now in panic mode.
The Fed has also announced an end to quantitative easing—the central bank’s program of buying Treasury securities—and has signaled a rapid pivot to quantitative tightening (QT), the sale of Treasury securities from the Fed’s bloated portfolio.
Brian McCarthy of the Epoch Times states, “Markets are right to be unsettled by the Fed’s shift in interest rate policy, which has been effected with all the deftness of a dozing driver yanking the steering wheel, as he awakens to the expanding headlights of an 18-wheeler bearing down on him on a dark country road.”
Essentially, The Federal Reserve has bungled their management of inflation and now have to make severe changes to offset the damage. This brings market instability and increased mortgage rates.
2nd Homes and Mortgage Rates
Mortgage interest rates and fee structures are increasing for second home financing, thanks to the Federal Housing Finance Agency (FHFA).
The FHFA has announced targeted escalations to Fannie Mae and Freddie Mac’s upfront fees for second home loans.
FHFA Acting Director Sandra Thompson
In a statement, FHFA Acting Director Sandra Thompson said the fee increases are to provide better access to mortgages for first-time and low-income borrowers, as well as strengthen Fannie Mae’s and Freddie Mac’s balance sheets.
For mortgages on 2nd homes, they will now look nearly identical to investment properties in terms of rates and fees.
Essentially, this appears to be the FHFA’s attempt at revenue redistribution. They will be charging more for 2nd home financing in order to facilitate increased participation in first-time and low-income borrower programs.
Mortgage rates hit their highest level since before the pandemic began this week. Rates are up over .75% since the beginning of January and up over 1% since their all-time lows last year.
“The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic,” Sam Khater, Freddie Mac’s chief economist, said in the report. “Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on home buyer demand.”
Essentially, the rates that were seen last year (2.75% for a 30-year fixed mortgage) just aren’t available today…and borrowers need to be willing to accept that fact.
Some Perspective
With that said, today’s mortgage rates are still extremely low relative to historical norms.
Take a look at this chart, showing average mortgage rates since 1972 (courtesy The Mortgage Reports):
Rates in the 3% to 5% range are very, very low compared to those in recent history.
This means that although rates might not be in the 2% range (as they were at times last year), today’s mortgage rates are clearly are advantageous to borrowers.
Would you like to find out more? Contact me to discuss your current situation and how you might be able to take advantage of today’s market. It would be my pleasure to help you!
For second home loans, upfront fees will increase between 1.125 percent and 3.875 percent, depending on the loan-to-value ratio.
Why The Change?
Essentially, this appears to be the FHFA’s attempt at revenue redistribution. They will be charging more for 2nd home financing in order to facilitate increased participation in first-time and low-income borrower programs.
FHFA Acting Director Sandra Thompson
In a statement, FHFA Acting Director Sandra Thompson said the fee increases are to provide better access to mortgages for first-time and low-income borrowers, as well as strengthen Fannie Mae’s and Freddie Mac’s balance sheets.
“These targeted pricing changes will allow the Enterprises to better achieve their mission of facilitating equitable and sustainable access to homeownership, while improving their regulatory capital position over time,” said Thompson.
“Today’s action represents another step FHFA is taking to strengthen the Enterprises’ safety and soundness and to ensure access to credit for first-time home buyers and low- and moderate-income borrowers.”
In short, it looks like second homeowners will be footing the bill and helping fund first-time buyer and low-income borrower programs.
What Does it Mean?
For mortgages on 2nd homes, they will now look nearly identical to investment properties in terms of rates and fees.
Traditionally, 2nd homes had similar rates and fees relative to primary residences. Here are a few sample scenarios prior to the FHFA’s move…assumptions: 760 credit score, 20% down (80% loan-to-value):
Primary residence or 2nd home
Interest Rate – 3.5%
Points – $0
Investment Property – single family residence
Interest Rate – 4.5%
Points – 1.5 (1.5% of the loan amount)
After April 1st,, here’s what we can expect:
Primary residence
Interest Rate – 3.5%
Points – $0
Second Home or Investment Property – single family residence
Interest Rate – 4.5%
Points – 1.5 (1.5% of the loan amount)
These rates/fees are just examples to show the differences in between primary residences and 2nd home/investment properties. Of course, rates are subject to change daily.
Also, these increases are for loans purchased by Fannie Mae and Freddie Mac on/after April 1st, 2022 – and most lenders will need to have these increases in place for loans closing in March.
For example, under the new plan, the buyer of a second home with a $300,000 mortgage loan amount and loan-to-value ratio of 65% will pay an additional fee of $4,875 if their mortgage is acquired by Fannie Mae or Freddie Mac, per the National Association of Home Builders.
Prior to the policy change, the same buyer would pay no additional fee for the comparable mortgage.
Dissenters
“With the nation in the midst of a housing affordability crisis and many more workers electing to telework, this is exactly the wrong time for federal regulators to be raising fees on homeownership and second homes,” Chuck Fowke, chairman of the NAHB, which has spoken out against the fee increases.
The National Association of Realtors (NAR) chimed in, as well: “Fannie Mae and Freddie Mac will face greater risks as the market is waned off of the extraordinary federal support during the pandemic, and these changes may help them to support the maximum access and affordability possible for the market in a sound manner,” said NAR President Leslie Rouda Smith.
“However, we are concerned that any fee increases that exceed necessary levels in the current environment will harm affordability and access for consumers. REALTORS® believe any excess revenues gleaned from the fee increases must be used to support homeownership opportunities in underserved communities, expanding affordability and access in a safe manner.”
In Conclusion
Unfortunately, get ready to pay more for your second home.
As always, mortgage rates for second homes will depend on a borrower’s credit score and down payment. With current mortgage rates on the rise during the first part of 2022, some market watchers are even forecasting that the new fees could increase interest rates to nearly 5% for second home purchases late this spring.
If the new mortgage interest rates aren’t to your liking for 2nd homes, you always have the alternative lending market to explore. There are other options out there!
Do reach out to me to find out more, as it would be my pleasure to help you!
Home prices have climbed rapidly over the last 3 years. So much so, many in the media worry that a housing market crash might be looming.
Is this really a valid fear?
Will the Housing Market Crash In 2022? Nearly all experts say “no”.
Given the increases in value of homes, there are a few in the news media pontificating that a housing market crash is on the horizon.
Experts and the data, however, suggest otherwise. Here are two key factors…
New “Millennial” Buyers
The Millennial demographic makes up a major portion of homebuyers. Most experts believe that next year, they’ll continue to the major players in the national housing market. Many of them will be first time buyers, which will help keep demand for homes robust over the next few years.
Believe it or not, household formations of those ages 27-35 is over double the rate of actual homes being built. There will continue to be a wide gap between the number of homes that need to be built to keep up with demand. This alone is putting pressure on prices which won’t change in the foreseeable future.
Low Inventory
Housing inventory has made things tough for homebuyers as of late. This has been a crucial factor in the rapid rise of home prices over the past year. Although demand among buyers continues to remain strong, existing inventory has not been sufficient to keep up with that demand.
Most industry insiders believe that this situation stay with us in 2022. According to Fannie Mae, a total of 6.8 million new and existing homes are expected to sell by the end of this year. In 2022, about 5.6 million existing homes are expected to be sold, along with 893,000 new home sales.
What Can We Expect in 2022?
According to Zillow, the average price of a home in the US has jumped 19% over the last year. They also predict home prices to increase at a rate of 13.6% over the next 12 months.
As you might remember from your basic economics coursework, the price of anything is based on supply and buyer demand. Over last 2 years, demand among homebuyers has been strong, while housing inventory has been very tight.
Continued Constricted Inventory
While buyer demand remains high, housing inventory is shrinking for the time being. Year-over-year, the number of listed properties decreased 22% compared to 2020. Unfortunately for buyers, seller activity continues to be much slower relative to buyer traffic.
Strong Buyer Demand
Real estate professionals anticipate home buyer demand to remain strong into 2022. In September of 2020, listed homes received an average of 3.4 offers, and by the same month a year later, that number moved up to nearly 4 offers.
These figures suggest that buyer demand has remained fairly strong yet stable, which is expected to be the case moving into 2022.
Mortgage Rates
Low mortgage rates make home buying more affordable. Even though home prices have risen dramatically over the past year, historically low interest rates have still made it achievable for buyers to get into the market.
Over the past three years, mortgage rates have been on a steady decline, though they’ve recently shown a slight uptrend. In the fall of 2018, the rate for a 30-year fixed-rate mortgage peaked at nearly 5%
Today, the rate for the same mortgage type now sits right around 3.375%. This makes a huge difference in the overall cost of a mortgage and monthly mortgage payment amounts.
According to the Mortgage Bankers Association (MBA), the average 30-year fixed-rate mortgage rate will reach 3.7% by the third quarter of 2022, and could hit 4% by the end of the year.
Find Out More
In 2022, most believe that property values will most likely continue to rise, although at a slower rate. With that said, a crash is highly unlikely.
Would you like to find out more? Contact me to discuss your current situation and how you might be able to take advantage of today’s real estate market. It would be my pleasure to help you!
Thomas Eugene Bonetto
Mortgage Loan Originator
NMLS: 1431961
About The Coach
Tom Bonetto has been helping his customers and players achieve their best for nearly 30 years. His goal is to provide both a superior customer experience and tremendous value for both his business associates and his players alike.
The views expressed are my own and do not necessarily reflect those of Starlight Mortgage.
