Not surprisingly, mortgage rates resumed their steady march higher last week, according to Freddie Mac’s latest survey of average rates. We’re continuing to see the economy shift. On the one hand, data is showing strong job and wage growth but uncertainty lingers due to high inflation, fears of recession, and rebalancing in the housing market. The remainder of this year will be important for the housing market and the economy.
As for now, I want you to know that there are more options for homebuyers (and sellers!) that want to purchase in this environment. One of the best options I’ve seen is the 2/1 buydown program. Here’s how it works. It lowers the rate borrowers pay by 2% for the first year and 1% for the second year. The plan is then to be able to refinance sometime in the next few years. For example, if the Note Rate is 6.25% loan payments would be based on 4.25% for the first year and 5.25% for the second year.
Who pays for the rate buydown? Good question! The seller. We build the cost for the buydown into the purchase as a seller credit. So, say the house is being sold for $600,000. The Borrower’s offer is $600,000 but the agents work in the $10,000 cost of the buydown as a seller credit. So, the contract purchase price would then be $610,000 and the seller adds a $10,000 credit toward the buyer.
I’m seeing the agents actually helping to sell this program because it’s helping sellers and buyers adapt to these high rates. The borrower still needs to qualify for the loan at the highest rate. And depending on the loan amount and rate I do the savings/cost calculations and work with the agents so they credit the correct amount.
So, if this sounds like an interesting option, let’s talk! We can look at your specific scenario and see if it makes sense for you.
What else I’m watching this week…
Earlier this week we learned that on a quarterly basis, home price growth has slowed to 0.2 percent, the slowest quarterly growth since the end of 2011. The report also showed that as mortgage rates continue to climb, home prices are responding by dropping – nearly 14 percent for the third quarter of this year.
Mid-week we get a look at the leading indicator in the housing market, the report on Housing Starts and New Building Permits. After a surprising rebound to 1.58 million in August, housing starts in September are expected to resume their path down to a 1.48 million annualized rate. Permits, which unexpectedly slowed to a 1.54 million rate in August, are expected to rebound to 1.55 million in September.
The report on Existing Home Sales, having contracted every month since January, in September is expected to contract to a 4.70 million annualized rate from 4.80 million in August as the housing market continues shifting.
As for inflation, last week we watched as Consumer inflation rose 0.4 percent last month and the annual rate fell from 8.3 to 8.2 percent. Could this signal that we’ve passed the peak? Only time and more data will tell.
Following the release of the hot inflation data last week, the Fed Meeting adjourned with the members voting to raise the Fed Funds Rate again by .75 percent, hoping to slow down inflation growth.
