Lenders, home buyers, and especially home sellers are spooked for good reason. The 2022 and 2023 mortgage rate chaos has been intense. In 2022, rates began at 3.25%, peaked at 7.375% near Halloween, dropped to 6% in early February 2023, hit 7% by late February, and are now near 6.5%. What a ride. Now what?
Do we get a spring home buying bump now?
Can the Fed beat inflation in 2023?
Even if they do, are we just in a higher-rate era now?
Can people even afford today’s home prices?
And most important, what can home buyers, sellers, and lenders do about it?
I answered all these questions in this guest blog for Total Expert:
It’s written to speak to lenders, but the lessons for home buyers and sellers are the same.
Here’s an excerpt on affordability:
Median existing home prices are $363,000, down $50,800 from a June 2022 peak of $413,800.
Monthly cost on a $363,000 home purchase with 5% down and a 6.5% rate would be $2881.
If your borrower had no other monthly debt, they’d qualify making $80k per year. If they had $600 in credit card, auto, and other monthly debt, they’d qualify making $97k per year.
Newly built home prices are $438,200, down $58,600 from the October 2022 peak of $496,800.
Monthly all-in cost on a $438,200 home purchase with 5% down and a 6.5% rate would be $3456.
If your borrower had no other monthly debt, they’d qualify making $96k per year. If they had $600 in non-housing monthly debt, they’d qualify making $113k.
This is still affordable for millions of households.
The question is what sellers may do from here.
On the one hand they have rates in the 3-4% range and have a little trouble with going to a rate with a 6 on it.
But they also have record home equity, so if they sold to buy a new home, their down payment would be huge.
So their monthly payment would end up being attractively low.
I explain more of the rate, economic, and housing outlook in the post, which is a fast, informative read.
Go check it out and let me know what you think.