Ruben pushed off looking for a house until the summer. He reasoned with his wife Goldie that the kids would be away at camp and with only the two little ones at home who would be watched by his in-laws, they would be able to concentrate on the various communities and housing that they would look at. Earlier in the Spring, they spent a Shabbos in an “out of town” community to test the waters in a community that was far from what they were used to.
The housing in the community they visited was significantly less expensive than in the New York area. The job Ruben was looking at paid less than he was getting in the New York area. Goldie was introduced to a teaching job that paid approximately the same as she would be making in the New York region. Tuition was more expensive and so was kosher food, thanks to the shipping and handling. Ruben calculated that with lower housing costs and a far less expensive commute, the family could do well out of town. It came down to a decision on a house in the out-of-town community or a house near where the couple grew up. But even so, the big question for them was whether the summer of 2022 was a good time to buy a house.
The experts are saying that housing prices could drop by as much as 10% in many U.S. cities, per Fortune, referencing a new report from Moody’s Analytics. However, the dip won’t represent a national home price correction, according to Moody’s chief economist Mark Zandi. He says that , within the next 12 months, home price growth will reach zero year-over-year. Some of the most overpriced housing markets will experience declines, he predicts. Sitting back and waiting for a sharp decrease in housing did not seem to be a good strategy. But is there a cooling market condition that would dictate waiting?
Zandi attributes the cooling market to rapidly rising mortgage rates in an already-overvalued market. Nearly two years have gone by with record-low mortgage rates. 2022 started off with rates rising higher than pre-pandemic levels. . Even though rates are higher than they were in 2021 they are still considered “normal” from a historical perspective. It was only a few short years ago where the 30-year fixed rates were in the high 5% ‘s. Based on these economics, there does not seem to be justification to wait it out.
As Ruben found out there is no general rule about housing costs and that no two communities were alike. Although the mortgage rates might have been similar in the two communities he and his wife looked at, the housing prices were miles apart. Obviously, the prices are dictated by market values as well as the quality of the housing stock. Goldie’s father had offered to help them with the down payment, but he was very much against their moving out of town.
Ruben had assumed that once the Federal Reserve raised the interest rate that mortgage rates would similarly go up, but in most cases the mortgage rates did not follow. There are some that are predicting that as inflation continues and housing gets more expensive that mortgage rates will catch up.
One expert put it this way: “Home Buying decisions take a lot more consideration outside of the interest rate anyway. Buying a home is about making a lifestyle choice. What is going on in the interest rate market can influence a decision, it is wise to not base it solely on a few basis points on a mortgage rate. Setting and sticking to a realistic home buying budget is way more important than what rate you get.” In recent days, there was even some movement downward for mortgage rates. The averages for both 30-year fixed, and 15-year fixed mortgages slid down. The most common type of variable-rate mortgage is the 5/1 adjustable-rate mortgage (ARM) which also tapered off. In the last few days, the average 30-year fixed mortgage rate was 5.62%, 20-year fixed mortgage rate 5.58% and a 15-year fixed mortgage rate was 4.86%.
Various economic factors have led to an increase in mortgage rates this year. Persistently high inflation is a big reason, Jacob Channel, senior economic analyst at LendingTree said. According to the Bureau of Labor Statistics, the May inflation rate recently reached 8.6%, its highest level in 40 years. The Federal Reserve increased its benchmark short-term rate by fifty basis points in May and by seventy-five basis points in June because inflation remained higher than expected. A spike in mortgage rates preceded the Fed’s announcement after the inflation report was released.
There are some economists that link many economic factors to increases in mortgage rates. For example, they look at housing starts to determine the extent of demand for housing. Inflation is an obvious indicator, and some even look at wages to ascertain the rate of foreclosures. Many are convinced that the overall economic environment is dictating mortgage rates.
“We have a lot of factors that are putting upward pressure on mortgage rates,” Channel says. Financial markets are still reacting to the COVID lockdown in China and the invasion of Ukrainian territory by Russia. “The volatility has been through the roof,” Shashank Shekhar, founder and CEO of InstaMortgage, said. “The market has been adjusting to a new news cycle practically every single day.”
In other words, the banks look at a whole set of factors in determining mortgage rates. These factors are not only in play in the purchase of new homes or the purchase of first homes. They are major factors even in refinancing. And there is good news if one is considering refinance because the average rates for 15-year fixed and 30-year fixed refinance loans went down. If one is considering a 10-year refinance loan, just know average rates also sank.
Business consultants are very much interested in what happens to mortgage rates and the housing market. They say that a healthy housing market and low mortgage rates spell healthy communities and a favorable business climate. They would advise Ruben to go ahead with purchasing a home now because as one put it “things are about as good as it gets.”