Is there such thing as good mortgage news these days?

Question:

Was there any good mortgage news in 2022, a year when loan rates soared?

Answer:

The government reported that the Consumer Price Index rose 9.1% in June 2022 when compared with a year earlier, the biggest increase in 40 years. The technical term for this, according to leading economists, is yikes.

Since June the inflation rate has fallen, in large measure because the Federal Reserve forced up bank rates by repeatedly increasing the federal funds rate, the rate banks pay to borrow from each other overnight. The Fed actually raised rates seven times during 2022, for a total increase of 4%. Such increases forced the prime rate higher and that, in turn, has led to higher borrowing costs in general.

The story with mortgages is somewhat different. No doubt mortgage costs have increased when compared with a year ago, but by the end of 2022 they actually fell from mid-year highs.

According to Freddie Mac, weekly mortgage rates started at 3.22% in January and reached 7.08% in

October and November. By the end of December, weekly rates were back down to 6.27%, according to Freddie Mac.

Let’s not sugarcoat 2022: If you’re a borrower there’s no doubt that a 3.22% mortgage rate is a lot more tempting than 6.27%. The higher rates plainly resulted in fewer mortgage originations and reduced home sales.

But both real estate and money are commodities. Their value – what they can buy – goes up and down. It’s not realistic to believe that home values will rise everywhere all the time or that mortgage rates will always be at or near historic lows, as they were in 2021. However, there were some results in the 2022 marketplace that can be seen as positives.

First, most mortgage borrowers – 95% according to analysts Stephen Kim and Trey Morrish with Evercore ISI – have fixed-rate financing with rates below 3.4%. Such borrowers have not been hurt by rising mortgage rates because their stable monthly mortgage costs are actually a hedge against inflation.

Second, mortgage debt has increased. According to the Federal Reserve Bank of New York, mortgage debt amounted to $11.99 trillion at the end of the third

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By Peter G. Miller

quarter of 2022 versus $10.99 trillion a year earlier. That’s an additional $1 trillion in mortgage debt despite high rates, evidence that people are borrowing, though surely not at the levels seen in recent years.

Third, home prices are generally higher than a year ago.

While home SALES fell in 2022, PRICES did not. The National Association of Realtors estimates that the typical home value was up 3.5% as of November 2022 when compared with a year earlier. Home sales in 2022 will likely be around 4 million units, not a great number but not a collapsed market, either.

So, as strange as it seems, even with quickly-rising mortgage rates and fewer sales, the 2022 real estate market was generally a hedge against inflation and enjoyed rising values.

All things considered, that’s a good result given a year dominated by worries about the pandemic, inflation, the Ukraine war, and perhaps an oncoming recession. As to what will happen in 2023, it’s too early to tell, but we should know a lot more in the next few months.

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