October 4, 2022 – October 4th. Every year we ask the same question – what will the next phase look like?

Economic Commentary

October 4th. What is the importance of October 4th? Well for one thing, I was born on October 4th in 1952 — and I will let you do the math. As I go past this personal milestone, I realize that I have been writing this economic commentary for over half of these years. And all the while, it seems like history continues to repeat itself. On the other hand, every year is completely different.

We have delivered this commentary through times of high interest rates – much higher than today, the sub-prime crisis, the Great Recession, the pandemic and more. Presidents have come and gone. Unemployment has been sky high, and it has been very low. We have had several refinance booms and mortgage slumps. And through all of this, every year we ask the same question – what will the next phase look like?

As usual, I don’t have the answer. But I will say this – people will still need homes. And they will purchase homes. And 30 years from now, those homes will be more expensive than today. Beyond that, I still won’t be able to predict the future with any certainty. Oh yes – there will still be taxes, but I don’t know how much mortgage interest you will be able to deduct. Finally, I doubt that I will be writing this commentary 30 years from now. But ten years would be nice—I hope you have enjoyed it…Dave Hershman

P.S. Don’t forget the jobs report this week!

Weekly Interest Rate Overview

The Markets. The Fed meeting did not halt the upward climb in rates, which intensified as the Bank of England addressed a currency crisis across the pond. For the week ending September 29, 30-year rates rose to 6.70% from 6.29% the week before. In addition, 15-year loans climbed to 5.96% and the average for five-year ARMs increased to 5.30%. A year ago, 30-year fixed rates averaged 3.01%, more than 3.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The uncertainty and volatility in financial markets is heavily impacting mortgage rates. Our survey indicates that the range of weekly rate quotes for the 30-year fixed-rate mortgage has more than doubled over the last year. This means that for the typical mortgage amount, a borrower who locked-in at the higher end of the range would pay several hundred dollars more than a borrower who locked-in at the lower end of the range.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

The mortgage market is in for another big shift in a few months. That’s when a sizable increase — roughly 12% or 13% — in the conforming loan limit appears likely to be announced. If so, it will bring the ceiling to well over $1 million in places where houses are super expensive. The loan limit is a key benchmark for both borrowers and lenders. It is the maximum dollar amount on mortgages that can be acquired by government-sponsored enterprises Fannie Mae and Freddie Mac. Anything under the limit that is sold by primary lenders to the GSEs must comply to their rules (thus the term “conforming”), while anything above the ceiling is considered a jumbo loan. It’s important for borrowers to understand that distinction because loans touched by Fannie and Freddie are sometimes priced cheaper than other loans – and may require lower down-payments (editor’s note). The conforming loan limit is adjusted annually by the government. The limit for this year is $647,200 in most places — a whopping 18.5% higher than the 2021 limit of $548,250 — and it’s $970,000 in a handful of high-cost markets.

Any changes will be announced on Nov. 29, when third quarter prices are revealed, and will go into effect at the beginning of the new year. House price increases have slowed lately because of higher mortgage rates and inflation fears, which have combined to send many wannabe buyers and sellers to the sidelines. But at least until the middle of the year, houses were still selling fast and furious and for top dollar. Recently, the Federal Housing Finance Agency’s (FHFA) quarterly index was up 17.7% year-over-year at the end of the second quarter. Another double-digit jump in the loan limit appears to be in the offing. Based on second-quarter numbers, the ceiling would rise 12%, to nearly $725,000. In high-cost markets, it would fly past the million-dollar benchmark to roughly $1,087,500. If there was just a 3% year-over-year increase in the index in the third quarter, the baseline limit would still increase by 15%, to $745,000. If the bump in the index was 6%, the ceiling would rise by 18%, to $764,000. All this is pure speculation, of course. There’s still a long way to go until the third-quarter figures on which the limit is based are announced. For what it’s worth, there’s about a 30-day window between the new limits being announced and going into effect. During that time, many lenders jump the gun by raising their ceilings, but they hold on to their loans until they can sell them to the GSEs early next year. Some will even offer conforming loans at the higher ceiling prior to the November announcement based on their own assessments. Source: The Housing Scene by Lew Sichelman published by Uexpress

The economy is in a recession? 30-year mortgage rates near 6%? Doesn’t matter—some home buyers are still planning to buy a home in the next six months, according to a new survey. According to the survey by Realtor.com, which looked at visitors accessing listings as well as search results, nearly 46% of would-be house buyers polled said they’re planning to go ahead and purchase a home in the next six months, even though recession fears are weighing on prospective buyers. That’s higher than the share of buyers who planned to buy in July 2019. The data from the survey show that “some home shoppers are finding silver linings in the form of cooling competition,” Danielle Hale, chief economist at Realtor.com, said in a statement. With rising inventory levels, and options available in smaller, more rural markets, “this fall could bring relatively better chances to find a home within budget,” she added. Two in five buyers believe that the U.S. economy is already in a recession. But 42% of respondents said that the recession would have “no effect” on their decision to buy a home. In fact, around 27% of buyers are actually more likely to buy amid a recession. That’s up from 24.7% from last year. There are emerging signs of the market tipping in buyers’ favor: Fewer buyers are being outbid, dropping from a peak in April of 12.6% reporting that they were beaten out, to 9.4% in July. Source: MarketWatch