Real Estate Weekly: January 13, 2023

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What to consider regarding mortgage rates over the next

By Erik J. Martin CTW Features

If you’ve been thinking about purchasing a home, no doubt you’ve been keeping a close tab on mortgage interest rates – which have skyrocketed over the past several months.

The higher rates go, the less purchasing power buyers have and the more expensive the overall loan/financing becomes. Consider that borrowing $300,000 for a home over 30 years at 7% will cost about $1,996 a month – about $386 more than the same home and term at a 5% rate.

So how should prospective purchasers navigate the next several months?

Should they postpone a transaction until rates decrease to a more affordable threshold, or should they lock in a rate soon before mortgage rates go even higher?

“With the current mortgage rate fluctuations, it’s vital for prospective home buyers to closely monitor the market over the coming months if a move is on the horizon,” suggests Martin Orefice, CEO of Rent To Own Labs. “Interest rates that are too high can have an enormous negative ef-

fect on their ultimate mortgage payments, whereas lower rates can help secure more savings over time.”

Alex Byder, the owner of BD Home Holdings, LLC, points out that a home purchase is likely the largest single transaction will make in your lifetime.

“The mortgage rate you lock in will play a massive role in your personal finances over the next 30 years, so it’s one of the biggest decisions of your life,” he adds.

Boyd Rudy, an associate broker with Dwellings Michigan, reminds readers that markets are dynamic,

few months

and that comes with fluctuating interest rates.

“If you wait too long, you may miss out on historically low rates and end up financing your dream home at a much higher rate than expected. On the flip side, taking on a mortgage before rates level off could trap you into making more payments than necessary for years to come,” Rudy explains. “Therefore, this is an especially important time for new homebuyers to track mortgage rate activity and make more informed decisions that protect both their shortterm and long-term finan-

cial well-being.”

Diane Gonzalez, a real estate agent at Rodeo Realty in Calabasas, California, gives her clients the same advice when they ask about rates.

“Marry the house, but date the rate. If you love the home, buy it. Then, when rates go down, you can refinance to a lower rate,” she recommends.

Eric Jeanette, president of Dream Home Financing, says there are indications that mortgage rates will drop in 2023 versus where they are today.

“In 2023, I’m expecting the average 30-year fixed

rate to be 5.5%. This is due to the recognition by the Federal Reserve that, in 2022, their rate increases were very aggressive, and now homes are out of reach for many first-time homebuyers.”

Other experts predict a wide range of mortgage rate possibilities across 2023, with many leaning toward a 6% to 7% rate and others prognosticating rates in the 4% range.

“In the first half of 2023, many economists anticipate that the 30-year rate will range between 5.5% and 6.25%,” says Boyd Rudy, an associate broker with Dwellings Michigan.

Knowing the right time to lock in a rate will depend on your personal circumstances, timeline, and urgency to purchase.

“A rate lock is a guarantee that a mortgage lender will honor a specific interest rate at a specific cost for a set period. The benefit of a rate lock is that it protects you from market fluctuations,” notes Josip Rupena, founder/CEO of Milo.

“Ideally, it’s best to lock in your rate when mortgage rates are lowest as possible. Otherwise, the sooner the better is generally the best option, as rates tend to fluctuate in its hard to predict these fluctuations.”

For best results, consult closely with a trusted lender and your real estate agent. A financial planner can also help you forecast money matters that your mortgage will impact, too.

Lenders that finance with reduced closing costs

Question:

Our lender has financing with reduced closing costs. This will save us several thousand dollars, but how can a lender afford to do this?

Answer:

A no-closing-cost mortgage – sometimes described as a “zero-cost” loan – may sound as though the expense of closing is free, but that’s not the case. Nobody is giving out money. Instead, what you’re looking at is a trade, less upfront cash in exchange for a higher interest rate or loan amount.

Are no-closing-cost loans a good deal? It depends on the trade and your needs. The big question is how much you get versus how much you pay.

Let’s say you borrow $300,000 at 7%. The monthly cost for principal and interest is $1,996. The lender says, “look, if you’ll pay 7.5%, I’ll pay the first $3,500 in closing costs.” The higher rate means a monthly cost for principal and interest of $2,098, an extra $102 a month or $1,224 a year. Also, while $3,500 may be helpful, actual

closing costs may be higher, depending on such factors as the cost of the property, local costs, etc.

In this situation the lender is betting that the mortgage will be outstanding for more than 35 months ($3,500 divided by $102 = 34.31). If rates go down the borrower might refinance, if rates remain where they are or go higher the borrower will likely stick with the loan. However, the borrower’s bet is different.

Just like the lender, there is a cost-versus-benefit bet being made by the borrower. If borrowers expect to be long-term owners, they may hope that rates fall enough to justify refinancing the property.

Lower closing costs might mean a property can be bought now. If you believe home values will rise, then the additional monthly cost might get you appreciation that you would otherwise miss. That’s been a good bet in recent years – according to the National Association of Realtors, median home prices rose 12.9% in 2020, 15.4% in 2021, and 6.6% as of October 2022 when compared with a year earlier.

However, no one knows what will happen in

ASK OUR BROKER

By Peter G. Miller

the future, especially given that we remain in a pandemic economy and the threat of recession is both real and concerning.

Another problem is that while no-money-down programs reduce up-front cash costs, a buyer will need a bigger loan. That means monthly payments will be higher, and higher monthly payments can push borrowers over allowable debtto-income (DTI) maximums. If the DTI is too high, the loan may be declined.

If closing costs are an issue – and because they’re a large cash cost that can be the case for many borrowers – it can pay to look for alternatives. For instance, in a slowing market sellers may be willing to negotiate closing costs. Help from a down payment assistance program can reduce the cash required for that specific cost, cash that can then be used for other expenses. And, simply, if the market is slowing buyers may be able to negotiate a better deal with a lower purchase price.

Email your real estate questions to Mr. Miller at peter@ctwfeatures.com.

Remote workers drive housing market movements

By Marilyn Kennedy Melia CTW Features

These days, the old adage “A man’s home is his castle” needs an addendum: “if it’s also his office.”

While rising rates pushed many buyers out of the market in 2022, those still buying did so in a big way. For the year ending in June 2022, home buyers moved a median 50 miles away, far longer than the 15-mile median of the previous few years, according to the National Association of Realtors (NAR).

The long-haul moves can be explained by other studies, showing that home buyers working remotely were looking for larger homes with home office space, at prices still affordable, despite higher mortgage rates. Those places were often smaller towns, farther away from the cities and

suburbs that previously attracted many buyers when the pandemic hit.

By August of 2022, the share of workers who are remote “appears to have stabilized near 30 percent,” reads the recent Federal Reserve Bank of San Francisco study, “Remote Work and Housing Demand.” Moreover, Jessica Lautz, deputy chief economist at the NAR, reports “For many, remote work decisions were formalized in the last year, providing clarity for employees to permanently move to more distant areas.

Indeed, remote work will probably continue, along with traditional drivers, like interest rates and economic conditions, impacting housing demand:

Small towns gain affordability-minded remote workers when rates rise.

According to The Wall Street Journal/Realtor.

com Emerging Housing Market Index, in the third quarter of 2022, Johnson City, TN, followed by Visalia-Porterville, CA and Elkhart-Goshen, IN, were the top three markets for buyers seeking affordability and good lifestyle. Earlier in the pandemic, now more pricey markets, like Coeur d’Alene, ID were most popular.

Suburbs can comeback.

High rates knocked out one earlier trend of workers who commute less frequently to the office moving to outer suburbs. But a Federal Reserve Bank of Kansas City study predicts that home construction in outer suburbs, particularly in Chicago, Los Angeles, Philadelphia and Boston areas, where workers have the longest commutes, will rise when rates drop.

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