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Modest Up Tick This Week in Mortgage Interest Rates
Freddie Mac today released the results of its Primary Mortgage Market Survey® , showing the 30-year fixed-rate mortgage (FRM) averaged 6.71 percent.
“Mortgage rates have hovered in the six to seven percent range for over six months and, despite affordability headwinds, homebuyers have adjusted and driven new home sales to its highest level in more than a year,” said Sam Khater, Freddie Mac’s Chief Economist. “New home sales have rebounded more robustly than the resale market due to a marginally greater supply of new construction. The improved demand has led to a firming of prices, which have now increased for several months in a row.”
- 30-year fixed-rate mortgage averaged 6.71 percent as of June 29, 2023, up from last week when it averaged 6.67 percent. A year ago at this time, the 30-year FRM averaged 5.70 percent.
- 15-year fixed-rate mortgage averaged 6.06 percent, up from last week when it averaged 6.03 percent. A year ago at this time, the 15-year FRM averaged 4.83 percent.
The PMMS® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.
Lending Standards Changed Since Craash
You might be worried we’re heading for a housing crash, but there are many reasons why this housing market isn’t like the one we saw in 2008. One of which is how lending standards are different today. Here’s a look at the data to help prove it.
Every month, the Mortgage Bankers Association (MBA) releases the Mortgage Credit Availability Index (MCAI). According to their website:
“The MCAI provides the only standardized quantitative index that is solely focused on mortgage credit. The MCAI is . . . a summary measure which indicates the availability of mortgage credit at a point in time.”
Basically, the index determines how easy it is to get a mortgage. Take a look at the graph below of the MCAI since they started keeping track of this data in 2004. It shows how lending standards have changed over time. It works like this:
- When lending standards are less strict, it’s easier to get a mortgage, and the index (the green line in the graph) is higher.
- When lending standards are stricter, it’s harder to get a mortgage, and the line representing the index is lower.
In 2004, the index was around 400. But, by 2006, it had gone up to over 850. Today, the story is quite different. Since the crash, the index went down because lending standards got tighter, so today it’s harder to get a mortgage.
Loose Lending Standards Contributed to the Housing Bubble
One of the main factors that contributed to the housing bubble was that lending standards were a lot less strict back then. Realtor.com explains it like this:
“In the early 2000s, it wasn’t exactly hard to snag a home mortgage. . . . plenty of mortgages were doled out to people who lied about their incomes and employment, and couldn’t actually afford homeownership.”
The tall peak in the graph above indicates that leading up to the housing crisis, it was much easier to get credit, and the requirements for getting a loan were far from strict. Back then, credit was widely available, and the threshold for qualifying for a loan was low.
Lenders were approving loans without always going through a verification process to confirm if the borrower would likely be able to repay the loan. That means creditors were lending to more borrowers who had a higher risk of defaulting on their loans.
Today’s Loans Are Much Tougher To Get than Before
As mentioned, lending standards have changed a lot since then. Bankrate describes the difference:
“Today, lenders impose tough standards on borrowers – and those who are getting a mortgage overwhelmingly have excellent credit.”
If you look back at the graph, you’ll notice after the peak around the time of the housing crash, the line representing the index went down dramatically and has stayed low since. In fact, the line is far below where standards were even in 2004 – and it’s getting lower. Joel Kan, VP and Deputy Chief Economist at MBA, provides the most recent update from May:
“Mortgage credit availability decreased for the third consecutive month . . . With the decline in availability, the MCAI is now at its lowest level since January 2013.”
The decreasing index suggests standards are getting much tougher – which makes it clear we’re far away from the extreme lending practices that contributed to the crash.
Bottom Line
Leading up to the housing crash, lending standards were much more relaxed with little evaluation done to measure a borrower’s potential to repay their loan. Today, standards are tighter, and the risk is reduced for both lenders and borrowers. This goes to show, these are two very different housing markets, and this market isn’t like the last time.
Homeownership Wins In The Long Run
Today’s higher mortgage rates, inflationary pressures, and concerns about a potential recession have some people questioning: should I still buy a home this year? While it’s true this year has unique challenges for homebuyers, it’s important to think about the long-term benefits of homeownership when making your decision.
Consider this: if you know people who bought a home 5, 10, or even 30 years ago, you’re probably going to have a hard time finding someone who regrets their decision. Why is that? The reason is tied to how home values grow with time and how, by extension, that grows your own wealth. That may be why, in a recent Fannie Mae survey, 70% of respondents say they believe buying a home is a safe investment.
Here’s a look at how just the home price appreciation piece can really add up over the years.
Home Price Growth over Time
The map below uses data from the Federal Housing Finance Agency (FHFA) to show just how noteworthy price gains have been over the last five years. And, since home prices vary by area, the map is broken out regionally to help convey larger market trends.
If you look at the percent change in home prices, you can see home prices grew on average by just over 56% nationwide over a five-year period.
Some regions are slightly above or below that average, but overall, home prices gained solid ground in a short time. And if you expand that time frame even more, the benefit of homeownership and the drastic gains homeowners made over the years become even clearer (see map below):
The second map shows, nationwide, home prices appreciated by an average of over 290% over a roughly 30-year span.
This nationwide average tells you the typical homeowner who bought a house 30 years ago saw their home almost triple in value over that time. That’s a key factor in why so many homeowners who bought their homes years ago are still happy with their decision.
And while you may have heard talk in late 2022 that home prices would crash, it didn’t happen. Even though home prices have moderated from the record peak we saw during the ‘unicorn’ years, prices are already rebounding in many areas today. That means, in most markets, your home should grow in value over the next year.
The alternative to buying a home is renting, and rental prices have been climbing for decades. So why rent and deal with annual lease hikes for no long-term financial benefit? Instead, consider buying a home.
Bottom Line
If you’re questioning if it still makes sense to buy a home today, remember the incredible long-term benefits of homeownership. If you’re ready to start the conversation, let’s connect today.
The True Cost of Selling Your House on Your Own
Selling your house is no simple task. While some homeowners opt to sell their homes on their own, known as a FSBO (For Sale by Owner), they often encounter various challenges without the guidance of a real estate agent. If you’re currently considering selling your house on your own, here’s what you should know.
The most recent Profile of Home Buyers and Sellers from the National Association of Realtors (NAR) surveyed homeowners who’d recently sold their own homes and asked what difficulties they faced. Those sellers say some of the greatest challenges were prepping their home for sale, pricing it right, and properly managing the required paperwork, just to name a few.
When it comes to selling your most valuable asset, consider the invaluable support that a real estate agent can provide. By partnering with an agent, you can navigate the complexities of the selling process with confidence. Here are just a few of the many ways an agent is essential to your home sale:
1. Marketing and Exposure
Effective marketing is a key piece of attracting qualified buyers to your property. Real estate agents have access to various marketing tools and platforms, including MLS listings, professional photography, virtual tours, and extensive professional networks. They can create a compelling listing that highlights your home’s best features and reaches a wider audience.
If you sell on your own, you may struggle to match the reach of agents, resulting in limited exposure and, ultimately, fewer potential buyers.
2. Managing Liability and Legal Considerations
Today, more disclosures and regulations are mandatory when selling a house. And all that paperwork and all the legal aspects of selling a home can be a lot to manage. Selling a house without professional guidance exposes homeowners to potential liability risks and legal complications.
Real estate agents are well-versed in the contracts, disclosures, and regulations necessary during a sale. Their expertise helps minimize the risk of errors or omissions that could lead to legal disputes or delays.
3. Negotiations and Contracts
Negotiating the terms of a home sale can be challenging, especially when emotions are involved. You may find it overwhelming to navigate these negotiations alone. Without an agent, you assume this responsibility on your own. This means you’ll have full accountability for working and negotiating with:
- The buyer, who wants the best deal possible.
- The buyer’s agent, who will use their expertise to advocate for the buyer.
- The home inspection company, who works for the buyer.
- The home appraiser, who assesses the property’s value to protect the lender.
Rather than going toe-to-toe with all these parties alone, lean on an expert. Real estate agents act as intermediaries, skillfully negotiating on your behalf and ensuring that your best interests are protected. They have experience in handling tough negotiations, counteroffers, and contingencies. When you sell your house yourself, you’ll need to be prepared to manage these vendors on your own.
4. Pricing and Housing Market Knowledge
Determining the right asking price for your property is crucial. It requires in-depth knowledge of the local real estate market, including recent sales data, neighborhood trends, and the current demand for properties. Real estate agents have access to comprehensive market data and the expertise to analyze it accurately.
When you sell your house on your own without this comprehensive information, you risk overpricing or underpricing your home. This can result in an extended time on the market and also the risk of leaving money on the table – which decreases your future buying power. An agent is a key piece of the pricing puzzle.
Bottom Line
While selling a home on your own might seem appealing at first, the challenges that come with it can quickly become overwhelming. The expertise that a real estate agent brings to the table is vital for a successful sale. Instead of tackling it alone, let’s connect to make sure you have an expert on your side.
Do Eco-Friendly, Energy-Efficient Homes Attract Buyers?
Are you planning to sell your house? If so, you may be surprised to hear just how much buyers value energy efficiency and eco-friendly features today. This is especially true as summer officially kicks off.
In fact, the 2023 Realtors and Sustainability Report from the National Association of Realtors (NAR) shows 48% of agents or brokers have noticed consumers are interested in sustainability.
So, if you’re considering selling your house, why does this matter to you? It helps you know what you can do to make your house even more appealing to today’s buyers. According to Jessica Lautz, Deputy Chief Economist and VP of Research at NAR:
“Buyers often seek homes that either lessen their environmental footprint or reduce their monthly energy costs. There is value in promoting green features and energy information to future home buyers.”
Consider Upgrading Your Home To Make It More Appealing
If you want to upgrade your house in a way that maximizes its green appeal, you need to work with a local agent to understand what buyers in your area are looking for. The same NAR report identifies the following green home features as most important to buyers at a national level:
- Windows, doors, and siding
- Proximity to frequently visited places
- A comfortable living space
- A home’s utility bills and operating costs
While you can’t change the location of your house, you can take action to make sure it’s as comfortable as possible while also setting up the next owners for lower operating costs. ENERGY STAR shares some suggested upgrades as ones that may be worth considering:
- Heating and cooling: Ensure your HVAC system is properly maintained and regularly serviced to maximize its efficiency. Consider upgrading to a high-efficiency model, if needed.
- Water heater: Your water heater uses a lot of energy. Upgrading to a heat pump water heater can significantly reduce energy consumption and appeal to environmentally conscious buyers.
- Smart thermostat: A big part of your energy bill goes to heating and cooling. Install a programmable thermostat to better regulate temperature settings. This not only enhances comfort but can also lower energy usage.
- Attic insulation: Proper sealing and insulation in your attic help prevent air leaks and maintain a comfortable temperature, reducing the strain on heating and cooling systems.
- Energy-efficient windows: Replacing old, drafty windows with energy-efficient ones can minimize heat transfer and lower your energy bills.
It’s worth noting that you may be able to take advantage of tax credits and rebates for energy-efficient home installations and upgrades. These incentives could help offset a portion of the costs associated with eco-friendly home improvements.
As you prepare to sell your house, it’s important to recognize that real estate agents are valuable resources. They can help you determine which upgrades would be most appealing for buyers in your area and provide guidance on which green features to highlight in your listing. If you’ve already made these updates recently, tell your agent so they can feature them in your listing.
Bottom Line
Focusing on energy efficiency and eco-friendly features can help make your house more appealing to buyers today. Let’s connect to ensure you’re choosing the right upgrades for our area.
Is The Median Home Price Meaningless In Today’s Market?
Why the Median Home Price Is Meaningless in Today’s Market
The National Association of Realtors (NAR) will release its latest Existing Home Sales (EHS) report later this week. This monthly report provides information on the sales volume and price trend for previously owned homes. In the upcoming release, it’ll likely say home prices are down. This may feel a bit confusing, especially if you’ve been following along and seeing the blogs saying that home prices have bottomed out and turned a corner.
So, why will this likely say home prices are falling when so many other price reports say they’re going back up? It all depends on the methodology of each report. NAR reports on the median sales price, while some other sources use repeat sales prices. Here’s how those approaches differ.
The Center for Real Estate Studies at Wichita State University explains median prices like this:
“The median sale price measures the ‘middle’ price of homes that sold, meaning that half of the homes sold for a higher price and half sold for less . . . For example, if more lower-priced homes have sold recently, the median sale price would decline (because the “middle” home is now a lower-priced home), even if the value of each individual home is rising.”
Investopedia helps define what a repeat sales approach means:
“Repeat-sales methods calculate changes in home prices based on sales of the same property, thereby avoiding the problem of trying to account for price differences in homes with varying characteristics.”
The Challenge with the Median Sales Price Today
As the quotes above say, the approaches can tell different stories. That’s why median price data (like EHS) may say prices are down, even though the vast majority of the repeat sales reports show prices are appreciating again.
Bill McBride, Author of the Calculated Risk blog, sums the difference up like this:
“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.”
To drive this point home, here’s a simple explanation of median value (see visual below). Let’s say you have three coins in your pocket, and you decide to line them up according to their value from low to high. If you have one nickel and two dimes, the median value (the middle one) is 10 cents. If you have two nickels and one dime, the median value is now five cents.
In both cases, a nickel is still worth five cents and a dime is still worth 10 cents. The value of each coin didn’t change.
That’s why using the median home price as a gauge of what’s happening with home values isn’t worthwhile right now. Most buyers look at home prices as a starting point to determine if they match their budgets. But, most people buy homes based on the monthly mortgage payment they can afford, not just the price of the house. When mortgage rates are higher, you may have to buy a less expensive home to keep your monthly housing expense affordable. A greater number of ‘less-expensive’ houses are selling right now for this exact reason, and that’s causing the median price to decline. But that doesn’t mean any single house lost value.
When you see the stories in the media that prices are falling later this week, remember the coins. Just because the median price changes, it doesn’t mean home prices are falling. What it means is the mix of homes being sold is being impacted by affordability and current mortgage rates.
Bottom Line
For a more in-depth understanding of home price trends and reports, let’s connect.
Mortgage Rates Down for Second Week In A Row
Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing the 30-year fixed-rate mortgage (FRM) averaged 6.69 percent.
“Mortgage rates decreased slightly this week in anticipation of the pause in rate hikes by the Federal Reserve,” said Sam Khater, Freddie Mac’s Chief Economist. “As inflation continues to decelerate, economic growth is slowing and the tightening cycle of monetary policy is reaching its apex, which means mortgage rates are expected to decrease later this year and into next.”
- 30-year fixed-rate mortgage averaged 6.69 percent as of June 15, 2023, down from last week when it averaged 6.71 percent. A year ago at this time, the 30-year FRM averaged 5.78 percent.
- 15-year fixed-rate mortgage averaged 6.10 percent, up from last week when it averaged 6.07 percent. A year ago at this time, the 15-year FRM averaged 4.81 percent.
Nadia Evangelou Senior Economist & Director of Real Estate Research for the National Association of REALTORS® had this reaction to today’s PMMS survey release; Two of the main factors driving today’s mortgage market have become more favorable. Inflation dropped to 4%, and the Federal Reserve paused its interest rate hikes after raising rates for more than a year. Data also indicates that inflation may ease even faster in the following months. The latest release shows that CPI rent growth has already peaked and started to cool. With this decelerating trend in rent prices to persist in the upcoming months – following the trend of asking rent prices reported by the private sector – inflation will slow down further, pulling down mortgage rates. At the current mortgage rate, renters who pay $1,655 monthly for rent can spend the same amount on a monthly mortgage payment for a home with a value of $321,000.
For more information on daily mortgage interest rate movements, contact your mortgage lender.
The PMMS® is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit.
