Unpacking the Mortgage Sector: Homebuyers’ Sudden Halt Sends Ripples – Orange County Register

Unpacking the Mortgage Sector: Homebuyers' Sudden Halt Sends Ripples - Orange County Register

The housing market is experiencing a significant slowdown as prospective homebuyers pause their plans, largely in response to the surging interest rates. Freddie Mac’s latest weekly lender survey, conducted on October 5th, revealed that the average 30-year fixed-rate mortgage has climbed to 7.49%, reaching its highest point since December 2000.

Adding to the mix, the Bureau of Labor Statistics announced that the U.S. gained an impressive 336,000 jobs in September, surpassing the 12-month moving average by 69,000 jobs.

This substantial job growth has heightened expectations that the Federal Reserve will implement an interest rate hike of half a percentage point before the year’s end. Some experts predict that the prime rate could reach 9% by the end of 2023, and 30-year fixed mortgage rates may exceed 8%.

To put this into perspective, with the current interest rate of 7.49%, a 30-year fixed mortgage for a $600,000 property would necessitate a monthly payment of $4,191. This marks a significant increase compared to the record-low Freddie rate of 2.65% observed in January 2021, which would have resulted in a payment of $2,418.

The surge in mortgage rates has unsurprisingly taken a toll on the mortgage industry. Joel Kan, Vice President and Deputy Chief Economist at the Mortgage Bankers Association notes, “Mortgage applications have come to a standstill, dropping to the lowest level since 1996. The purchase market has slowed down to its lowest level of activity since 1995 as the rapid rise in rates has pushed many potential homebuyers out of the market.”

The impact of rising interest rates extends beyond the numbers, as Al Hensling, President of United American Mortgage, underscores. He explains that the higher interest rates have directly affected the borrowing power of buyers, forcing some to abandon their homeownership dreams or seek more affordable housing options. In Southern California, where the housing supply is already limited, sellers are reluctant to part with their sub-4% mortgages, exacerbating the challenge for buyers.

While conventional mortgages from Freddie or Fannie are becoming increasingly expensive, there is still activity in the non-prime or non-qualified mortgage space. Dean Ayres, Senior Vice President at Foundation Mortgage, emphasizes that it’s not just about the interest rate; it’s about getting the deal done. Ayres and Foundation Mortgage specializes in non-qualified mortgages, providing options for borrowers who may not qualify for traditional loans.

However, even in the non-prime space, interest rates are rising rapidly, with some exotic mortgages carrying rates exceeding 10%. This trend, coupled with the increasing difficulty of providing zero-point loans for marginally qualified borrowers, poses challenges for those seeking financing.

Looking ahead, there may be limited good news for homebuyers, unless they encounter distressed sellers willing to negotiate. With rates expected to continue their upward trajectory, home prices are likely to stabilize, and a challenging economic outlook looms on the horizon for the coming year.

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