Hot real estate topics: Rates, high payments, all-cash buyers

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | October 21, 2024

Article originally posted in Orange County Register on October 17, 2024

What is on the mind of real estate stakeholders? I checked in with consumers, mortgage loan originators and real estate industry professionals to find out.

Here are some of their hotly discussed topics.

Rates, rates, rates

Front and center is the interest rate spike shortly after the Fed dropped short-term rates. The Freddie Mac 30-year fixed rate averaged 6.20% on Sept. 19, one day after the Fed move. This week, the Freddie rate is at 6.44%. Yes, you are reading this correctly. The Fed drops short-term rates, and long-term (mortgage) rates spiked. Go figure.

What caused the spike? The only thing I can think of is the larger than anticipated hiring revealed in the jobs report Oct. 4.

Mortgage rates have gone up for the third consecutive week.

“The recent uptick in rates has put a damper on applications,” said Joel Kan, deputy chief economist at Mortgage Bankers Association, which reported applications plunged 17% from one week earlier.

Locally, many homebuyers are pausing until the 30-year mortgage rate drops. Besides homebuyers getting psyched out, we are entering what is traditionally the slowest homebuying season of the year.

Presidential election

Folks are mesmerized by the race between Vice President Kamala Harris and former President Donald Trump. For the record, there is no empirical data about real estate or mortgage rates that suggest either the Democratic or Republican parties are better or worse.

Some years ago, I researched and wrote a column going back several presidential election cycles. I found it didn’t make a hill of beans difference which party was elected as to where mortgage rates went. Rates went both higher and lower when both a Republican won the presidency, as well as when a Democrat won. The Federal Reserve maintains it is an apolitical central bank.

Real estate insiders agree. “There is no historical data to show elections affect real estate markets,” said Steven Thomas, chief economist, Reports on Housing.

Homeowners insurance

Homeowners are seeing their insurance rates double or triple, in some cases. Others aren’t so lucky. They get completely canceled by their carriers. Oftentimes, it’s because of claims made, or the property is in a high-fire hazard area. I advise you to think very hard before you make a claim. If it’s a small amount of damage, you might be better off just covering it yourself. Better than to see your insurance skyrocket or get canceled.

Other hot topics

House payments: How can folks possibly afford to make payments of say $8,000 a month on a $1,250,000 home with 20% down? More or less, you’ll need to make $216,000 annually to qualify for that home and mortgage.

Cash buyers: Where is all the money coming from? According to Thomas, 30% of Orange County homebuyers are paying cash. I think a lot of it comes from generational wealth in the form of inheritances.

Relocations: There’s much chatter over Los Angeles and Bay Area residents who are selling their homes and moving south. Why? Orange County has less crime, a smaller homeless population and no taxes on buying or selling mansions.

Condo sales: The high cost of getting property management companies to fill out the Fannie Mae condo questionnaire during a sale or refinance is staggering. In case you didn’t know it, only property management companies can fill out these crucial forms needed to complete a loan. I recently learned about a rush order for which a management company charged more than $900. I oftentimes see fees in the $500-$700 range.

Accessory dwelling units: Investors and homeowners seeking to squeeze more income from their rental properties are adding ADUs to their properties. Owner-occupied property owners are also showing a lot of interest in building a place for an elderly parent to live, for example.

Buyer broker representation agreement: Some homebuyers aren’t comfortable signing these new forms, part of an agreement by the National Association of Realtors to be more clear about who’s paying what for commissions. Others have no problem with it. Any real estate professional should be able to simply and clearly explain his or her value add to the consumer, ultimately making the home shopper more comfortable.

Credit report changes: The Homebuyers Privacy Protection Act of 2024 is an amendment tacked onto the U.S. defense bill in Congress. Briefly stated, if it passes, credit bureaus will no longer be able to sell your information to mortgage lenders when you are shopping for a mortgage.

Here’s a little more context: When a mortgage lender pulls credit on a borrower, the three major credit bureaus then turn around and sell that information to competing mortgage companies. Those mortgage companies almost immediately contact the mortgage applicant via email, text or phone calls. Most applicants hate the invasion of privacy. Mortgage loan originators hate it because these competing lenders are trying to get that business and because many borrowers mistakenly blame their lender for giving out their information.

Freddie Mac rate news: The 30-year fixed rate averaged 6.44%, 12 basis points higher than last week. The 15-year fixed rate averaged 5.63%, 22 basis points higher than last week.

The Mortgage Bankers Association reported a 17% mortgage application decrease compared to one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $613 more than this week’s payment of $4,815.

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 5.25%, a 30-year conventional at 5.875%, a 15-year conventional high balance at 6% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high- balance conventional at 6.25% and a jumbo 30-year fixed at 6.5%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego and Orange counties.

Eye-catcher loan program of the week: A 30-year mortgage, with 30% down, locked for the first 5 years at 5.875 with 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.