No relief this year for homebuyers, industry insiders predict

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | March 11, 2024

Article originally posted in Orange County Register on March 08, 2024.

High home prices. High mortgage rates. No inventory.

What is the home price tipping point? What will create more for housing inventory?

Today, I’ve asked housing experts to weigh in. Their consensus? Don’t expect things to change anytime soon.

“Existing home sales are in a deep freeze. The market is really mucked up with extraordinarily low inventory,” said Mark Zandi, chief economist at Moody’s Analytics. “Nationwide, home prices are up 50% compared to four years ago, pre-pandemic. Once inventory starts picking up, I expect price weakness in some parts of the country.”

Zandi noted southwest Florida residential and commercial property prices are already falling.

He thinks the market needs 6% rates, but that’s not happening anytime soon. Zandi sees the 30-year fixed at 6.5% by the end of 2024 and 5.75% by the end of 2025.

“Homeowners know rates are not coming back to 3.5%,” he said. “Life circumstances cause people to move. If there is nothing pressing, it’s not a great time to move.”

Ted Tozer, a former Ginnie Mae president under President Barack Obama, focused on the supply issue vs. demand.

“Will builders be able to build more housing? You are shuffling deck chairs on the Titanic,” Tozer said. The supply bottleneck is pushing up home prices. There is nothing to buy.”

Tozer observed the economy is not weak, growing at a 3% rate. He thinks the Fed will reduce short-term interest rates by 50 basis points later this year. Home prices will go up as mortgage rates go down.

Guy Cecala, executive chairman at Inside Mortgage Finance, pointed to stubbornly high prices, despite high rates in a depressed housing market.

“I don’t think you can raise home prices another 20% to 30% from current levels,” Cecala said.

He sees a reluctance to sell at the current 7% rate environment. “Any downsizing gets eaten up by the interest rate differential,” he said.

Cecala sees mortgage rates coming down to 6% by this fall. “More people would be sellers at 6%. People are willing to wait, but they can’t wait forever.”

Raymond Sfeir, director of economic research at Anderson Center at Chapman University, thinks home prices throughout southern California will continue to go up for the rest of the year.

The federal deficit concerns Sfeir at somewhere between $1.6 and $1.8 trillion. “Investors will ask for higher bond rates,” he said. The total debt, he believes, will be $35 trillion by the end of the fiscal year.

On the other side of this, Sfeir noted the increase of late payments on credit cards and auto loans. He sees more business and personal bankruptcies. “The economy will grow at half of what it was last year.”

Sfeir, like Cecala, sees mortgage rates at 6% by the end of the year.

Steven Thomas, chief economist at Reports on Housing, pointed to National Association of Realtor figures, which say the U.S. has had an average 1.1 million current listings since 2021. Look back to 2007 and it was 4 million average listings.

“Buyers are digging in their heels over $5,000 in expenses with 11 backup offers,” he said. “They are unrealistic on their repair list.”

Here’s a look at Southern California inventory comparing Feb. 29 to Feb. 23 last year, all provided from Reports on Housing:

Orange County: 1,992 vs. 2,218

Los Angeles County: 7,671 vs. 7,220

San Diego County: 2,591 vs. 2,216

Riverside County: 4,983 vs. 4,732

San Bernardino County: 3,392 vs. 3,356

The expected market time (number of days before going into escrow) compared with one year ago:

Orange County: 40 vs. 44

Los Angeles County: 67 vs. 58

San Diego County: 44 vs. 35

Riverside County: 64 vs. 58

San Bernardino County: 74 vs. 66

Freddie Mac rate news: The 30-year fixed rate averaged 6.88%, six basis points lower than last week. The 15-year fixed rate averaged 6.22%, four basis points lower than last week.

The Mortgage Bankers Association reported a 9.7% mortgage application increase 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 $76 less than this week’s payment of $5,038.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.5%, a 15-year conventional at 5.5%, a 30-year conventional at 6.125%, a 15-year conventional high balance at 6.375% ($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 6.5% and a jumbo 30-year fixed at 6.75%.

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.

Eyecatcher loan program of the week: A jumbo 30-year, fixed for first five years rate at 6.25% with 30% down at 1 point cost.

Jeff Lazerson, president of Mortgage Grader can be reached at 949-334-2424 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.