The only thing anyone can guarantee is that mortgage rates will change daily.
Nobody can accurately predict what mortgage rates will do over the next year but one thing most bankers and Realtors all agree on is 30-year fixed rates below 3% are a thing of the past for now.
As I have written about previously, we will never see anything like 2008 again because every buyer has had to qualify for their mortgage over the past 14 years. The government stepped in after the crash and made it illegal to do predatory stated income loans on residential property, especially owner-occupied homes.
Sure, a recession may create a bit more mortgage delinquency, but home values have gone up so much over the past four years that most folks have 20% to 30% equity in their homes now so if market values were to go down by 5% to 10%, folks will be able to escape by selling and moving down or out before they lose their home.
I doubt home prices will go down, but affordability and qualifying are already affecting the market. The best way to explain this is by sharing with our readers the difference between 3% and 5%.
Let’s look at a sales price of $750,000 with 20% down. The $600,000 loan on a 30-year fixed rate at 3% was $2,529 per month a year ago and at 5% today is $3,221 – or $692 higher. This higher payment may cause some buyers who are considering selling the starter home they bought over the past 12 years and move up to their forever home to stay put for a while because many of them refinanced over the past two years and now have a rate below 3%.
The key to this move-up decision is how recession-proof the buyer is on their job and the stability of their income.
The benefit of selling the departing residence now and moving up now rather than later is the demand for affordable houses between $450,000 and $600,000 is off the charts today, and although affordability is an issue for first-time homebuyers, there are still way more first-time buyers than there are sellers today.
The market needs more homes for sale and starter homes are getting multiple offers. Buyers are willing to rent back and allow the seller to stay in their home for a month or two after the close of escrow so the seller can use the sale proceeds to close on their forever home.
If you or your children are ready to sell their small home and move up to their forever home, a 5% rate shouldn’t scare you or them because historically over the past 40 years, 5% ain’t too shabby.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
