Mortgage rates continue to rise and are nearly a full percentage point higher than a year ago. House hunters should brace themselves for rates near 4% before the end of the year, economists say. “The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic,” says Sam Khater, Freddie Mac’s chief economist. “Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on homebuyer demand.”

Rising rates, however, are depressing housing affordability, Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the association’s blog. The interest rate on a mortgage has a direct impact on the size of the mortgage payment. Nearly 4 million households will likely be affected by rising rates in 2022, she notes.

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 10:

• 30-year fixed-rate mortgages: averaged 3.69%, with an average 0.8 point, rising from last week’s 3.55% average. Last year at this time, 30-year rates averaged 2.73%.
• 15-year fixed-rate mortgages: averaged 2.93%, with an average 0.8 point, increasing from last week’s 2.77% average. A year ago, 15-year rates averaged 2.19%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.8%, with an average 0.3 point, increasing from last week’s 2.71% average. A year ago, the 5-year ARMs averaged 2.79%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront costs of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

Housing affordability is tightening as home prices continue to climb faster than incomes. The median family income rose by 4.5% year over year in December 2021, while the monthly mortgage payment rose 22.5%, the National Association of REALTORS® reports.

The threat of rising mortgage rates could pose another challenge to housing affordability in the coming months as well.

In the fourth quarter, the average monthly mortgage payment on an existing single-family home rose to $1,240, based on a median home value of $361,700 with a 20% down payment and 3.13% 30-year fixed-rate mortgage, according to NAR’s latest quarterly housing report. This marks a jump of $201 compared to a year ago.

Mortgage payments are comprising a median of 16.9% of a family’s household income, up from 14.7% a year ago, according to NAR data.

“The good news is that home prices should begin to normalize later in 2022 as more homes come on the market,” Lawrence Yun, NAR’s chief economist, said in a statement after the release of NAR’s quarterly housing data.

Where Households Need to Earn the Most

In 20 markets, a family needed more than $100,000 to afford a 10% down payment on a mortgage. In these markets, the median home sales price ranged from $537,400 to $1.675 million. Some of these priciest metros for homeownership are:

• San Jose-Sunnyvale-Santa Clara, Calif.
• San Francisco-Oakland-Hayward, Calif.
• Anaheim-Santa Ana-Irvine, Calif.
• San Diego-Carlsbad, Calif.
• Los Angeles-Long Beach-Glendale, Calif.
• Hawaii (Urban Honolulu)
• Colorado (Boulder, Denver-Aurora-Lakewood, Fort Collins)
• Seattle-Tacoma-Bellevue, Wash.
• Portland-Vancouver-Hillsboro, Ore.
• Naples-Immokalee-Marco Island, Fla.
• Barnstable Town, Boston-Cambridge-Newton, Mass.-N.H.
• Nassau County-Suffolk County, N.Y.
• New York-Newark-Jersey City, N.Y.-N.J.
• New York-Jersey City-White Plains, N.Y.-N.J.
• Bridgeport-Stamford-Norwalk, Conn.
• Reno, Nev.
• Washington, D.C.-Arlington-Alexandria, D.C.-Va.

Where Households Need the Least

Pockets of affordability in housing still exist, however. In 81 markets a family needed less than $50,000 to afford a home. NAR located metro areas in which the median home sales price was less than $160,000 and a family needed less than $30,000 to purchase a home. Some of those markets, according to NAR, include:

• Decatur, Peoria, Davenport-Moline-Rock Island, Ill.-Iowa
• Waterloo-Cedar Falls, Springfield, Rockford, Ill.-Iowa
• Youngstown-Warren-Boardman, Toledo, Erie, Ohio-Pa.
• Binghamton, Elmira, N.Y.
• Cumberland, Md.-W.Va.

©National Association of REALTORS®
Reprinted with permission

Freddie Mac is launching an automated method for lenders to assess prospective borrowers’ income that is paid through direct deposits. The tool is intended to help reduce the paper documentation burden on borrowers so loans can close faster, Freddie Mac says.

The income assessment tool will be available to mortgage lenders nationwide and can be used, with a borrower’s permission, to assess income made by direct deposits into accounts. More than 93% of U.S. workers are paid by direct deposit, according to the American Payroll Association.

The tool also can assess an applicant’s income from employer data and review tax return data for self-employed individuals.

A Freddie Mac study(link is external) recently showed how lenders using such tools can shorten average cycle times for processing loan requests by up to 15 days.

“Our direct deposit solution is an innovative, data-driven approach that takes minutes, not days, to assess income so our clients can serve more borrowers more efficiently,” says Matt Vincent, Freddie Mac’s single-family vice president of credit and capacity. “Sourcing data directly from the mortgage applicant’s bank account increases accuracy, removes subjectivity, reduces manual underwriting errors and delivers a better experience for borrowers and lenders.”

©National Association of REALTORS®
Reprinted with permission

Rising home prices are prompting more borrowers to take out supersized home loans. Borrowers are taking out the largest mortgages ever on record.

The average purchase loan size reached an all-time high of $453,000, the Mortgage Bankers Association reports. Loan sizes have continuously been hitting new record highs over recent weeks. Home prices are up by double-digit percentages compared to a year ago.

“Prospective buyers still face elevated sales prices in addition to higher mortgage rates,” says Joel Kan, an economist with the Mortgage Bankers Association. “The heavier mix of conventional applications again contributed to another record average loan size at $453,000.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances rose to 4.05% last week, MBA reports. Rises in mortgage rates are pushing mortgage applications down. Mortgage applications to buy a home dropped 1% last week compared to the previous week; volume is 7% lower than a year ago, MBA reports.

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Reprinted with permission

Borrowing costs are climbing: The 30-year fixed-rate mortgage rose to a 3.92% average this week, Freddie Mac reports.

“Mortgage rates jumped again due to high inflation and stronger than expected consumer spending,” says Sam Khater, Freddie Mac’s chief economist. “The 30-year fixed-rate mortgage is nearing four percent, reaching highs we have not seen since May 2019. As rates and house prices rise, affordability has become a substantial hurdle for potential home buyers, especially as inflation threatens to place a strain on consumer budgets.”

As of now, however, the rising rates are sparking an urgency rather than a pause among house hunters, Nadia Evangelou, National Association of REALTORS®’ senior economist and director of forecasting, writes on the association’s blog. “Buyers are rushing to lock in lower rates as the outlook is for even higher mortgage rates in the following months,” she notes. Mortgage rates are still low by historical standards.

Freddie Mac reports the following national averages for mortgage rates for the week ending Feb. 17:

• 30-year fixed-rate mortgages: averaged 3.92, with an average 0.8 point, rising from last week’s 3.69% average. Last year at this time, 30-year rates averaged 2.81%.
• 15-year fixed-rate mortgages: averaged 3.15%, with an average 0.8 point, increasing from last week’s 2.93% average. A year ago, 15-year rates averaged 2.21%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.98%, with an average 0.3 point, increasing from last week’s 2.80% average. A year ago, 5-year ARMs averaged 2.77%.

Freddie Mac reports average commitment rates along with points to better reflect the total upfront cost of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission

Maine lawmakers are weighing a proposal that could forgive up to $40,000 in student loan debt for first-time buyers in the state.

The Maine Smart Buy bill would pay off student debt of at least $5,000 over five years as long as the buyer lived in the home for that long. Buyers must meet credit score requirements and face limits on the cost of the home they purchase.

The bill would offer “an opportunity to attract and retain young people by supporting a program that increases home ownership and provides student debt relief,” testified Democratic Senate President Troy Jackson, who was in favor of the proposal. “We need people to come to Maine to help be a part of our tax base, be part of the economy. And I think this is a great way to do it.”

Student debt is a common roadblock holding back aspiring first-time home buyers. Half of the potential home buyers surveyed in 2021 say they haven’t bought yet because of student debt, according to a report by the National Association of REALTORS® and Morning Consult. Millennials are the most likely to point to student debt for delaying home ownership.

Other states have offered programs similar to Maine’s proposal in helping to relieve student debt for first-time buyers. For example, Illinois and Maryland offer “Smart Buy” programs that pay off student debt for young adults who get a mortgage in the state. There are eligibility requirements and caps that young adults must meet to participate.

Maine has created other programs to attract more home buyers. In 2006, it touted a new campaign to bring in new residents: Visit for a Week, Stay for a Lifetime. As part of the program, those who visited Maine on vacation and then moved there got their vacation expenses recouped.

©National Association of REALTORS®
Reprinted with permission