7% Rates Mean Trouble For Market

For the first time in 20 years, 30-year fixed rates hit 7%

The last time 30-yr fixed mortgages were at 7%, the world was very different place:

  • Gas was $1.36/gallon
  • “Friends” was still on TV
  • The iPod was Apple’s latest gizmo
  • Tom Brady won his 1st Super Bowl

But what’s also drastically different compared to 2002 is our real estate market. 20 years ago, the median price for a Sacramento home was $187,000. That was relatively affordable even with rates at 7%. Today with rates at 7%; not so much. Let’s compare the then & now numbers.

Today, home values are almost 200% higher than they were 20 years ago while income is only marginally up 62% higher. All that translates to is instead of 34% of a household income going to a mortgage payment, it is now standing at an unsustainable 57%. Something has to give.

Let’s compare this percentage of income to what the market was at the last peak of the real estate cycle in 2005.

Home values were less & annual income was less but as a percentage, today’s household’s monthly income going towards a mortgage payment is higher than the levels in in 2005. That is a very troubling statistic. Something is going to break. Something has to change from these 2022 numbers. They are not sustainable. 1 of 2 things is going to happen: home prices have to come down or interest rates have to come down. Let me show you by how much.

How about a middle-of-the-road number of 45% as an acceptable mortgage payment-to-income ratio. To get to that number, home values need come down to $420K in Sacramento County. That’s a 21% drop from where they are right now. Keep in mind from 2005 to 2011, home values in Sacramento County decreased by more than 50%. To have a 21% correction, its not quite as deep of a crash as what we saw, but its very certainly possible to see them come down quite a bit if interest rates stay at these elevated levels at 7%.

Now, if interest rates come down then affordability is obviously aided by paying less in interest & you can pay more for a house. For home prices to remain at their current levels, 30-yr rates will need to fall down to 4% to get that percentage of income to acceptable 44-45% range.

Which is going to happen? I don’t know. We’re going to have to see as we go into Q4 here and see what happens with inflation. See what happens with buyer demand. There’s so many factors that go into impacting the health of the real estate market. But in the present moment right now with prices where they are at, with interest rates where they are at, we are at an unhealthy level.

If I had to guess, its going to be a combination of both prices and interest rates falling in the next 3-6 months for us to find a little bit more of a healthy footing for our real estate market. I know I just showed you Sacramento numbers, but this is an issue statewide and, arguably, nationwide.

What do you think, though? I’d love to see some comments down below. Tell me what your forecast is & we’ll all be on the edge of our seats here as we go into Q4 of 2022. As always, I appreciate you taking the time to watch my videos & read my posts.

Look out for more. I’ll keep you updated with market analysis here at MattsMemos.com.

Thanks again!

Got Debt?  You Are Not Alone

US household debt is at an all-time high; it may be time for a cash-out refinance

Spurred by the largest 3-month increase in credit card debt in over 20 years, total US household debt recently hit a record amount of $16.1 trillion…with a T!!! 

While $11 trillion is attributed to mortgage debt, that leaves over $5 trillion in car, student, and credit card loans. By my account, that averages to more than $40,000 per household in consumer debt!  Many of us are facing harder times with the on-going economic slow down along with surging gas and food prices. With credit card balances & their interest rates at all-time highs, it may be time to consider a cash-out refinance to consolidate high-rate loans

Home values remain resilient & most homeowners have record levels of home equity. At the same time, mortgage rates are settling down, with our best-priced lenders back in the 4s on 30-yr fixed loans. 

Has the economic slowdown forced you to borrow more against credit cards, cars, and education?  Borrowing from your equity at a low rate to pay off higher rate debt will lower your overall monthly payments and lower your interest costs over the long-run.

Consider the following graphs…according to CreditCards.com the national average credit card interest rate hit 17.48% last week, approaching an all-time high. With The Fed steadily increasing the Federal Funds Rate, this will lead to further increases in credit card rates.

Meanwhile, mortgage rates have been falling as credit card rates have been rising. 30-yr mortgage rates dipped below 5% last week for the first time since Spring time. Our rates, in particular, continue to be much lower than the industry average (read Our Rates Are Some Of The Best In The Biz).

Let us help alleviate the financial stress of carrying high credit card balances at astronomically high interest rates by refinancing them into a lower fixed rate mortgage. Give us a call & allow us to assess your cash-out refinance options.

What Are Mortgage Rates Doing? Just Look At Gas Prices!

Pump prices & mortgage rates have been in lockstep together, and both are headed down!

A client recently asked me where he could go to see current mortgage rates.  While there are more sophisticated research tools, I told him the easiest place to gauge rates at the moment is at the gas station! 

We see gas prices every day driving around town, wincing as we fill up, and giving real-life math questions to our kids in the car (or am I the only person that does that last one??!!).  You may not remember how much you paid for your last gallon of milk or your last loaf of bread you purchased, but I bet you recall the price of your last tank of gas ($105 for me; OUCH!).

Conveniently, mortgage rates have been in lockstep with California gas prices.  This makes following mortgage rate trends as easy as peeking at the gas prices as you drive by. Check out the graph & numbers below to see for yourself.

Rates & Gas are in Lockstep!
 



CA Gas Price per Gallon30-yr Fixed Mortgage Rate
Increase since Jan 2021$2.672.95%
Peak (amount)$6.446.28%
Peak (date)6/14/2206/14/22
Current (7/13/22)$5.65* 5.72%

*Price paid for regular unleaded at Arco on Folsom Blvd

Oddly, the price for gas (in $) has been & is nearly the same as a 30-yr mortgage rate (in %)! While its impossible to predict what these prices and rates will do in the future, the recent correlation between gas prices and 30-yr mortgage rates is unmistakable.  Even if you drive an electric vehicle or own your home debt-free, its important to keep tabs on gas prices and mortgage rates. They are the bellwether for so many other pieces of our economy.

So the next time you’re casually curious if mortgage rates are rising or falling, just look at the pump!  Both are currently in the largest decreasing trend since the early days of the pandemic. Lets hope they both continue to drop!

Our Rates Are Some Of The Best In The Biz!

Let me show you how we stack up to the rest of the industry

Mortgage rates fell .75% in the second-half of June, which was a welcome change to the steady increases we’ve seen for much of 2022.  During that same time period, our lenders dropped their rates by nearly 1%, making ours some of the lowest around!

As a mortgage broker, we have the ability to secure the best rates offered by our wide array of wholesale lenders.  This means the rate we find for you is generally lower than anything else you may find at a traditional retail bank. 

*Rates illustrated are based on a loan amount less than $648,250 with 740+ credit score & 25% home equity

Here is a chart showing how our 30-yr fixed rates* recently compared to the industry at large.  The blue line is the Mortgage News Daily Index, a broad sample of rates offered by various mortgage companies.  You can see it dropped considerably in late-June (more on that in another post).  But our rates dropped even more, making our rates nearly ½% lower than others in the industry heading into this past holiday weekend!

We love doing business as a mortgage broker because we can find the best rates around.  We never work with just one bank, because banks are always changing their rates.  Sometimes one is overwhelmed so they raise rates to intentionally push business away.  Other times they have a “sale” and discount their rates more than others.  During the month of June, we had 5 different “lead changes” amongst our lenders, meaning our top lenders are constantly outdoing one another to try and offer the lowest rates.  Our job is to find those opportunities to get you the best interest rate possible.

And what’s even better is you do not pay us for our services; the lender does!  When you combine our experience & service with great interest rates, you get the best of all worlds!  .If you or someone you know has been waiting for a rate decrease to refinance or purchase a home, give me a call. 

Summer Breeze, Makes Me Feel….

I’m forecasting falling home values, and this summer breeze on the cooling market should make buyers feel fine!

My oh my, a lot can change in a few months.  At the beginning of the year, home prices were rising at an unsustainable 4% per month and selling faster than ever before.  And then a war broke out!  Needless to say, Russia’s war sent shockwaves around the world & we’ve all been impacted by the war’s economic ripple effects (gas prices, food costs, interest rates, etc).

The typical red-hot summer real estate market has changed too.  Sellers have watched buyers become more hesitant due to the fastest rise in mortgage rates since the early 80s.  

As a result, 30% fewer home sales have occurred this month compared to the same time frame in 2021.  This significant decrease in volume will force motivated sellers to drop their prices to attract a buyer, and eventually this momentum should lead to declining home values by summer’s end.

Homes on the market are up; homes actually selling are down. But both are approaching normal, pre-pandemic levels

Some may read those figures and suggest this post’s musical title be changed to “Cruel Summer” or “Summertime Sadness.” But they would be wrong.  Rather, this cooling “Summer Breeze” is simply returning the market metrics to pre-pandemic levels.  We are approaching 7,000 homes for sale in the Sacramento market, a similar amount we saw in the spring of 2020.  This equates to 2 months of housing inventory on the market, again a comparable figure seen before the pandemic.

For some, this market slowdown is wonderful news!  A more balanced, normal market will lead to more opportunities for first-time buyers.  With younger Millennials now hitting their late 20s/early 30s, there are literally millions of them looking to purchase their first home.  This will help soften the fall for home prices, particularly for lower priced homes.

If you have been considering a home purchase, now is the time to get prepared for buying opportunities!  You have more options, sellers are more eager, and prices are no longer increasing.  Give me a call to discuss ways to best capitalize in today’s market as a home buyer.

The Fed Raised Rates. Now What??!!

You probably noticed recent news articles that went something like this…

“For the first time in 3 years, The Fed raises interest rates!!!”

This headline gets overly-simplified and makes the reader believe that ALL interest rates, including mortgage rates, increased overnight because of the government.  That is simply not true.  In fact, mortgage rates LOWERED slightly immediately after The Fed’s recent rate rise announcement.  Let me paint a more accurate picture.

The Federal Reserve Board (aka- The Fed) has direct control over a single rate, The Federal Funds Rate.  Some types of loans are indeed coupled to this rate, so The Fed’s decisions have a direct impact on these loans.  But fixed rate mortgages ARE NOT one of these types of loans.  Mortgage rates move not based on government decisions, but rather by open-market supply & demand.

Below is a graph that shows both the Federal Funds rate (the blue line) and 30-yr fixed rate (the gray line) over the last 5 years. You can see there is no direct correlation.  Surely, in 2019 they both were generally declining, but not at the same time nor pace. 

As in most things, open market dynamics force changes more quickly than bureaucratic decisions.  The chart shows the gray line’s peaks and valleys all pre-date the blue’s, with the exception of The Fed’s decision to plummet the Federal Funds Rate to nearly 0% at the onset of the Covid-19 pandemic. With the Fed’s rate finally rising, it doesn’t necessarily mean mortgage rates will continue to rise along with it. Perhaps mortgage rates have already hit their peak??

Here’s the takeaway…last week’s headlines of rising rates are old news for mortgages, and don’t ever assume that mortgage rates will change due to a Fed rate change.  Actually, mortgage rates have slightly improved since The Fed’s recent rate increase!

30-yr rates are now over 4%, so where do they go from here?  Much of that answer depends on the war in Ukraine, the cost of gas at the pump, and evolving expectations of this year’s mid-term elections.  Good luck correctly predicting the outcome of those story lines!!!

But, I will leave you with one more graph to consider as potentially a glimpse into the future.  Below is an illustration that shows the difference in interest rates from long-term to short-term US government bonds.  When the short-term bond has a higher rate than a long-term bond (a very unlikely event), the line’s chart goes into the pink negative territory.  Economists call that an “inverted yield curve,” and this financial anomaly has taken place before every US economic recession over the last 60 years. 

Presently, the difference from long to short term bond rates precariously sits at only +.2%, and has been falling in recent weeks.  If this figure indeed becomes negative and an inverted yield curve is realized, it could foreshadow an economy headed for a recession.  Mortgage rates nearly always fall during recessions, so its conceivable we will see lower mortgage rates in the near future.  Stay tuned, and thanks as always for reading!

Its time to get your Refi ON!!!

Last year I posted a ton about mortgage rates and refinance opportunities. This year to date I’ve been rather silent, largely because rates have trended higher and unfair government-imposed fees on refinance loans made them less attractive.  But that’s yesterday’s news!  Today its time to jump for joy and proclaim that mortgage rates are as low today as they have EVER been!!!

For starters, market conditions in recent weeks have been more favorable for mortgage rates.  Initial fears of widespread inflation have subsided, which has allowed mortgage rates to drop.  Furthermore, today the Federal Housing Finance Authority (FHFA) rescinded a fee applied last autumn that added a .5% charge to nearly all refinance transactions.  This is pleasant, unexpected, and well-needed news. 

Here’s a brief history lesson on the matter: the prior FHFA regime (under director Mark Calabria, appointee of former President Trump) suddenly and unilaterally imposed this fee in August 2020 under the guise of increased risk and costs associated with buying mortgages during the pandemic.  In reality, it was a good ‘ol fashion money-grab by the US government.  As soon as the law allowed (literally, a supreme court case was decided on the same day granting authority for removal from office), President Biden appointed current director Sandra L Thompson to replace Mr Calabria.  Within 30 days of taking her position, the Agency has removed this unnecessary fee for American homeowners. 

This means mortgage rates are at record lows!!!  Like crazy low.  Like 30-yr rates well under 3% & 15-yr rates near 2% low!!!  If you haven’t refinanced in the last 12 months, we should chat ASAP. Or, if you’re looking to take cash-out for home improvements or debt consolidation, its never been cheaper to borrow money from your home.  Tell your friends. Tell your family.  Lets collectively shout this news from the figurative roof-tops to help all homeowners save money!

I know the world is starting to get back to normal (for the moment) and that there are more fun things to do in the middle of summer than apply for a refinance. But, I would recommend you take a few minutes to call me soon to crunch some numbers and see how these developments can help you save money every month.

Mortgage Rates Are On Sale…But Not For Long!

Last month I covered an announcement by the Federal Housing Finance Authority that was going to make refinance loans significantly more expensive.  Essentially overnight, closing costs increased by ½% of the refinanced loan amount for applications not yet locked due to this “Adverse Market Fee.” 

This would have been similar to deciding to buy expensive item at a store with an advertised price on the shelf, and then having the price change while you’re in the check-out line! 

If that happened to you, you’d be upset & probably ask to speak with the store manager! Many mortgage and finance stakeholders did just that, and lobbied to the director of the FHFA to reconsider the surprise fee.  While the fee was not reversed, the FHFA recently announced a delay to the implementation of the Adverse Market Fee until later this year.  As such, there presently is a narrow window to close a refinance application before closing costs skyrocket.

But this window is closing quickly.  Lenders are already starting to announce when they’ll be implementing this Adverse Market Fee.  Some of my lenders have set dates between now and October 5th as the deadline for a loan to be locked to avoid this fee. 

Lots of refinance applications are going to rush through the system in the coming weeks, so its important to get your application in early and follow my “Ready. Aim. LOCK!” plan I detailed in my last blog post.

When you combine the incoming fee increase with the current crazy low interest rates, it makes a compelling case to take action now.  Rarely in our industry do we have a certain forecast as we do now guaranteeing closing costs will be higher in the near future. Rates are literally on sale, but the sale is ending soon!

My wife & I are following my own advice and recently began a refinance application for our mortgage.  I would strongly encourage you to do the same if you have a fixed rate over 3.5%.

I Said Rates Would Go Down…And I Was RIGHT!

Ready…Aim…LOCK!!!

Mortgage rates have been on a wild roller coaster ride for much of the year due to unpredictable and unprecedented Covid-related events.  When rates suddenly began climbing this Spring, I advised refinance clients to submit applications but hold off on locking a rate, as I was optimistic rates would fall in the coming months.  Nearly all of those clients who followed that advice benefited greatly as they locked record low rates this summer. 

Now, mortgage rates are poised to take another dip after rising during most of August. With the stock market having an awful day today, mortgage rates are creeping back to their record lows seen earlier this summer. New season, but same strategy; get an application in ASAP and get ready to lock a rock bottom rate!

Please watch this video detailing how my Spring-time refinance clients followed my advice to lock a low rate, and why you should do the same as we head into Fall! 

If you have considered refinancing in recent months but have hesitated moving forward, now is the time to get an application in with me! Doing so will help us get prepared to lock a record-low interest rate. Here’s what I need from you, and you can upload them safely using this link to Document Guardian:

Returning Clients
Recent pay stubs from the last month
2019 w-2 (or 1099 if retired)
An email authorizing me to pull your credit report
Last month’s bank statement for checking and savings accounts
2019 & 2018 tax returns (only if self-employed or own rental properties)
New Clients
In addition to the documents above, complete an application at https://mattsundermier.zipforhome.com/

Mortgage Rates Are At 1.999%!!!…Or Are They???

This week has been a wild one for mortgages!  Let me breakdown the major headlines for you…

Its been a wild ride…and the week is not over!!!

On Monday, one of our lending partners, United Wholesale Mortgage, began offering 30-yr fixed rates at 1.999%.  Many clients have seen posts on social media about these never-before rates, and have asked if they can get on the action.  Unfortunately, the marketing pieces don’t tell the whole story.  While these rates are technically available, the closing costs are so high most clients will sour to the idea of this offer.  I’m happy to discuss your options with you, but in general I do not recommend applying for these ultra-low rates just yet.

Then on Tuesday, mortgages had their single-worst day all summer, as most programs saw rates climb nearly .25% in a matter of hours due to mortgage investors lowering their demand to buy mortgage bonds.

Finally on Wednesday night, the US government imposed added closing costs for refinance loans.  Yes, they can do this (whether they should is another matter I’ll dive into in this post), and ultimately these costs are passed on to homeowners looking to refinance.

Mortgage rates change because of these three entities: banks, investors, and the government.  Here is a little insight into each, and while all of them influenced rates higher this week, I believe lower mortgage rates are ahead.  Feel free to read the entire post to educate yourself a bit on the dynamics of the mortgage industry.  Above all, however, I want to encourage you to still pursue a refinance application with me as I fully expect mortgage rates to settle down after this volatile week.

Banks – Banks are the connection between you (the consumer) and the market (bond investors).  Think of them as the Amazon of the mortgage biz.  When banks get overwhelmed with loan applications (as they have for the last several months) they make tons of money and take longer to process loans. 

This is just like Amazon, which has made record profits during the pandemic but is also taking longer to deliver items.   When business activity becomes unsustainable, banks raise their rates to slow down new applications. This is why our position as a mortgage broker is so important; we know which lenders are pushing business away and which are putting their rate “on sale” to encourage more business.  Unlike Amazon, mortgage banks do not hold a market monopoly, so we navigate the market to help find you the best rates and terms available.

Investors – Investors are the “free market” component of the mortgage industry, where good old-fashioned Supply & Demand influence the price of a product, in this case the rate on a mortgage.  As economic conditions change, it changes the value of mortgage bond investments. 

This value to an investor is the rate and “points” you pay for a new mortgage.  Generally speaking, when the economy is doing poorly, investors want to buy mortgage bonds because they are seen as a safe investment.  And when the economy is doing well and/or inflation is running high, investors shy away from buying so rates must go up to entice investors to keep buying mortgages.

Government – Whether we like it or not, our US government literally owns the mortgage industry.  The mortgage banks and investors utilize Fannie Mae and Freddie Mac to have standardized rules for mortgage underwriting and to “package” mortgages into investments.  Fannie Mae and Freddie Mac are owned by the US Government (a result of the mortgage market collapse in 2008), and their Board of Directors (US Congress) has given orders to these companies to be as profitable as possible.  They are not currently acting as a public service entity (as do most government operations); instead they are for-profit organizations for their shareholders (US taxpayers).  To keep up with the Amazon analogy, if you are the consumer and the investor is the market, then the government is the provider of cardboard.  Sounds benign enough, but in this world there is no other manufacturer of cardboard and all packages by law must be wrapped in cardboard.  So when the cardboard company sees Amazon making record profits and consumers getting record-low prices on products, they see a market opportunity for themselves.  They decide to drastically increase the price Amazon must pay for cardboard, so everyone in the supply chain must also increase their prices that the consumer ultimately pays.

This precise act just happened last night in the mortgage industry (read this article if you want to geek out on the details).  In short, the US Government increased the price investors must pay to buy mortgage bonds from refinance loans, which means the banks now have to offer higher rates to offset this price increase. 

In my opinion, this is a dirty “cash-grab” by a government forced to bail out an economy crippled by the pandemic with trillions of dollars in stimulus money.  Their announcement last night references “economic uncertainty” as a justification for the added fee, but if that’s true why didn’t this fee come into play months ago when uncertainty was at its apex, and why not apply it to purchase loans?  I don’t buy their story. 

Penny for the Poor?? I don’t buy it!

Congress is having a hard time passing laws to change taxes and other unemployment relief measures, so the government instead is changing “fees” to their services (you need a law to change taxes, but not fees) to raise money.  As an example, a refinance loan of $400,000 now carries an extra $2,000 fee that wasn’t there yesterday, which ultimately works its way to the government.  Multiply that by the millions of loans potentially closing in the coming months, and you can quickly see the government is taking advantage of their monopoly in the mortgage market.  If you like Calls To Action, the Mortgage Bankers Association has already started an effort to reverse it.  Click here to read their official statement and submit a message to politicians (use my company name in the business info section).

Even though its been a stormy week, there are still lots of flowers to pick and brighter days ahead. For those tiring of my analogies, mortgage rates are still incredibly low and the potential is high for them to fall lower in the near future.

Simply put, this week was a bad week for mortgage rates, but I think better weeks lie ahead.  Our economy is still on the ropes, and uncertainty remains high.  An effective Covid vaccine may never make it to the market, the current state of USPS may make it difficult to have a timely presidential election during this pandemic, and millions of Americans may remain unemployed indefinitely as certain business sectors die under the weight of Covid.  I know those are sobering points, but as long as they remain potential outcomes in the coming months it will keep downward pressure on mortgage rates.  If you have a refinance application in with me or hope to be submitting one in the near future, I urge you to stay the course.  Don’t abort your refinance mission, as I am confident rates will remain low and trend even lower in the coming months.