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 important that borrowers understand the upfront costs of buying a home and the fees (known as “closing costs”) that go along with the purchase. In some cases, many home buyers only consider the down payment when they are saving for a house and are surprised by the additional upfront costs.
The actual amounts needed for both the down payment and closing costs can vary by a wide margin. It’s important that would-be buyers meet with their mortgage professional first to get an idea of what they might be.
If buyers understand their options and choose their mortgage wisely, they can minimize upfront costs when buying a home.
There are several costs that borrowers must pay prior to the closing of a real estate transaction. Collectively, these are called “cash to close.”
Upfront home buying costs include:
Earnest money – 1% of purchase price or more (paid first but goes toward your down payment)
Down payment – This figure can be anywhere from 0% to 20% plus
Closing costs – 2–4% of home loan amount
Prepaid property taxes and home insurance – 6–12 months’ worth
It’s crucial that borrowers have a good idea of the upfront costs associated with buying a home so they can set their expectations realistically and have enough cash on hand to complete the transaction.
Earnest Money
This is also called a ‘good faith deposit’. Earnest money is a wire transfer or personal check paid to the seller and held by the escrow company shortly after your offer is accepted. This money tells the seller that you’re serious about purchasing the property.
Provided the deal goes through, your earnest money will be applied to your down payment at closing.
Buyers must also make a down payment that counts toward the home purchase price. This payment is made at the close of escrow.
The amount of the down payment varies by loan type. VA and USDA loans can be done with $0 down payment.
FHA loans can be done with as little as 3.5%.
Conventional loans vary from 3% down to 20%+.
If you’re not sure how much down payment you need, talk to your mortgage lender about which types of mortgage loans you qualify for and how much cash is required for each one.
Your down payment is only one of the parts due at the close of escrow, as closing costs must also be considered. These cover all the fees required to set up your mortgage loan, including the lender’s fees, appraisal, inspection, and other third–party service fees.
Borrower’s can estimate paying 2–4% of your loan amount in closing costs.
A few of the major ones include:
Mortgage application, origination, and underwriting fees
Home inspection
Home appraisal
Discount points
Mobile notary fees
Title search and insurance
Recording fees
Soon after you apply for your home loan, the lender will give you a document known as a Loan Estimate. This standardized, three-page document gives you a lot of important information about your new loan.
Page 1 includes your loan amount, mortgage rate, and estimated monthly payments, as well as an estimate of your total closing costs. Page 2 provides an itemized breakdown of the various costs associated with your loan.
Prepaid taxes and insurance are usually lumped into closing costs. But it’s helpful to explain them separately so borrowers can better understand these costs and classify them as unique expenses.
At closing, borrowers are required to pay for a year’s worth of homeowners insurance coverage. Lenders will not lend on uninsured property, hence this requirement.
Prepaid taxes are also collected at the time of closing and are estimated from the date of closing to the next tax due date.
Note that you may not have to pay these costs upfront if you put at least 20% down and decide not to open an escrow account for your taxes and insurance.
Getting Started
Interestingly, all home buyers pay essentially the same set of upfront fees…although the actual cost is quite different from one buyer to the next!
The total upfront home buying costs depend on your loan type, location, mortgage lender, mortgage rate, and a number of other factors.
For this reason, reach out to me before you start looking for a home. I will be able to go through how much you can expect for your down payment and closing costs. 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!
As we move into 2022, one thing is clear…today’s real estate market is one for the record books.
The exact mix of conditions we have today creates opportunities for both buyers and sellers.
Home values are appreciating at rates we have not seen since the housing boom nearly 15 years ago.
At the same time, there is a general shortage of homes for sale across the nation. This has led to prevalent bidding wars, as homebuyers struggle to purchase a home before prices go even higher.
Let’s take a look at today’s real estate market and how it will affect you as a home buyer (and seller).
4 Main Developments
Home Price Appreciation
Shortage of Available Homes
Purchase Competition and Bidding Battles
Rise in Home Equity
Let’s take a closer look at these 4 factors…
Home Price Appreciation
Over the past year, we have seen incredible home price appreciation throughout the US. According to the most recent Home Price Index (HPI) from CoreLogic, national home prices have increased over 18% year-over-year!
This creates a great opportunity for current homeowners to tap into that equity via a cash-out refinance to make other investments or pay off more expensive consumer debt.
It is not at all unexpected that rising home values are a big part of why real estate remains one of the top investments. For potential sellers, it also means it is a great time to list your house to maximize the return on your investment.
Shortage of Available Homes
In 2021, the number of homes available for sale fell to an all-time low. In recent months, however, inventory levels gradually began to trend up.
According to the latest Monthly Housing Market Trends Report from Realtor.com, newly listed homes have grown by nearly 5%. This isn’t fantastic news for buyers, but the trend is heading in a positive direction.
However, even though we are experiencing small gains in the number of available homes for sale, inventory remains a challenge in most states.
This would still be considered a “seller’s market”, giving current homeowners a good deal of control if/when they decide to put their house up for sale.
Purchase Competition and Bidding Battles
Today’s low supply combined with high demand creates a market with buyer competition and bidding wars.
Purchasers are being forced to become aggressive to make sure their offer stands out from the crowd by offering over the asking price or waiving some contingencies.
The number of offers on the average house for sale broke records last year. As a matter of fact, last year’s Confidence Index from the National Association of Realtors (NAR) stated that the average home for sale received at least five offers!
For buyers, the best way to put a convincing offer together is by working with your local real estate professional. That agent can act as your trusted advisor on what terms are best for you and what is most appealing to the seller.
Rise in Home Equity
The final key trend we see in today’s real estate market is the rise in home values and equity. One key thing to consider:
The equity in a home does not just grow when a homeowner pays their mortgage — it also increases as the home’s value appreciates.
Due to this increase in appreciation, homeowners across the country are seeing record-breaking gains in home equity.
This is clear when looking at CoreLogic’s recent reports that indicate homeowners with mortgages (which account for roughly 62% of all properties) have seen their equity increase by 19.6% year-over-year!
Again, this has produced a great opportunity for current homeowners to tap into their home equity. They can do this with a cash-out refinance to make home improvements, other real estate investments, or pay off higher balance consumer debt.
In Conclusion
If you are considering purchasing a home, conditions are a bit challenging because of low inventory, but the rewards can be substantial, as the housing appreciation is expected to continue into 2022!
Contact me to discuss becoming a homeowner or pulling out some equity in your current home, as 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.
