Homebuyers hit the brakes, ‘smothering’ the mortgage marketplace – Orange

Homebuyers have taken a timeout as rising interest rates smother the housing market.

On Thursday, Oct. 5, Freddie Mac pegged the average 30-year fixed rate at 7.49%, according to its weekly lender survey. The last time the rate was this high was December 2000.

A day later, the Bureau of Labor Statistics stunned with its September employment report. The U.S. added a booming 336,000 jobs — 69,000 more jobs than the 12-month moving average.

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Forget a one-quarter point rate hike by the Federal Reserve before the end of the year. This new jobs information certainly puts us squarely at a one-half-point increase. The prime rate, I believe, will hit 9% before 2023 is done. Mortage rates for a 30-year fixed loan are going to top 8%.

Assuming a 7.49% interest rate, a 30-year fixed mortgage today on a $600,000 mortgage nets the homebuyer a $4,191 payment. Compare that to the all-time low Freddie rate of 2.65% in January 2021 and a payment of $2,418.

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Mortgage borrowing costs for well-qualified borrowers have increased 73% in a little more than two and one-half years.

And this mortgage rate ascent has absolutely smothered the mortgage business.

“Mortgage applications grounded to a halt, dropping to the lowest level since 1996,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association. “The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market.”

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I checked in with some of my industry peers to get their takes.

“The interest rate climb has directly affected the borrowing power of buyers, pricing many of them out of the market or searching for less expensive properties,” said Al Hensling, president, United American Mortgage. “Many who were just on the cusp of affordability are finding themselves reevaluating their options of purchasing at this time.”

“The challenge in Southern California, an area already experiencing a lack of housing for sale, is the fact that many would-be sellers are reluctant to give up their sub-4% mortgages to make a move further impacting buyers’ ability to find homes for sale,” Hensling said.

Latest market news: Rising mortgage rates squeeze Southern California homebuyers, depress sales

What about borrowers who can’t qualify for a good, albeit currently expensive, Freddie or Fannie conventional mortgage?

The exotic mortgage space, also known as non-prime or non-qualified mortgage, is where there is still a pulse of business volume.

“It’s not the rate. It’s can you get the deal done?” said Dean Ayres, senior vice president at Foundation Mortgage. “We’re seeing a lot of deals that were denied elsewhere for one…