Sales sink 25% as payments up 44%
Homebuying chilled to the sixthslowest June since 1988 as the typical Southern California homebuyer faced a recordbreaking $3,311 payment — up 44% in a year.
My trusty spreadsheet looked at what has become a market-icing mix: the intersection of high home prices and rising mortgage rates. Using data from DQNews and Freddie Mac, we’ve generated a hypothetical typical monthly home loan payment a buyer would get, assuming a 20% down payment. The math does not account for property taxes, association dues or insurance.
The average 30-year rate in June averaged 5.24% over the past three months versus 4.79% in May and 3% a year earlier. So a house hunter’s borrowing power fell 5% in a month and 24% in a
year.
The pain
Dreaming of living in a place you can call your own has gotten so pricey that house hunters are beginning to abandon their searches. Note that in June, 25% fewer home sales were made in Southern California compared with a year ago.
A key culprit is the Federal Reserve. The central bank is only beginning its battle against the highest inflation rate in four decades. It’s using a house hunter’s least favorite weapon — interestrate boosts. Just ponder the wannabe owner’s challenge: soaring rates coupled with high prices.
In one month, the region’s estimated payment rose $123, or 3.9% more. In a year, payments rose $1,021 or 45%. The median price, by itself, is up 10% over 12 months.
And do not forget this financing math assumes a house hunter has a $150,000 down payment, or 20%. This particular fi
Contract closings fell 5.4% from May to an annualized 5.12 million, the National Association of Realtors says.
the appraisal came back at $1,200,000. I thought I misread the report. I can’t recall the last time I had a client underpay by 12.5%.
Just like that, Weber starts out $150,000 ahead.
“Sellers don’t want to admit it’s a buyers’ market,” said Weber. “Some sellers were offended (when) we didn’t overbid.”
It’s been an insatiable sellers’ market for a good three years. Not anymore.
On Wednesday, the Mortgage Bankers Association reported its lowest level of mortgage loan applications in 22 years.
“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation and persistent affordability challenges are impacting buyer demand,” said Joel Kan, MBA’s Associate vice president of economic and industry forecasting.
If you are on the hunt for your dream home, a second home or an investment property, consider the broader menu of seller concessions — not just sales price.
Think big. Ask for a lot. Sellers can just say yes, no or monkey in the middle.
For example, consider a permanent rate buydown. Assume you can get a 30-year fixed rate at 5.5% without points. The principal and interest payment would be $3,407 on a $600,000 loan. At 4.875%, the payment would be $3,175, or more affordable by $232 per month.
This concession would cost the seller roughly 2% of the loan amount, or $12,000. But it could potentially save the buyer $83,520 over the life of the loan.
Homebuilders are especially open to a cornucopia of concessions if it doesn’t mean discounting the sale price. They want their closed sales comps to remain steady to make sure discounts don’t torpedo pricing for an entire phase of freshly built homes.
Always shop around and compare any builder credits with outside vendors like flooring and mortgage companies. To my knowledge, a builder’s
Builder concessions are on the rise as the housing market cools. But buyers should shop around before accepting builder options on such items as flooring or financing.
ancillary goods and service providers tend to have inflated prices. Can you say profit center?
Freddie Mac allows interested party contributions of up to 3% of the sales price for home buyers making down payments of less than 10%. Such IPCs include home seller, builder and real estate agent concessions. Freddie also allows up to 6% in IPC concessions for loans with 1025% down, and up to 9% for buyers putting more than 25% down.
Freddie allows a maximum 2% IPC for investment properties, regardless of down payment size.
Other potential concessions arise after your home inspection.
For example, the buyer and seller can agree to a seller’s credit for roof and plumbing repairs, which can be completed after escrow closes. Say the cost of repairs totals $15,000. You could convert that into closing cost credits or reduce the sales price by that amount.
Keep in mind the lender will reduce the appraised value by the amount of the repairs if you call it a repair
credit. That could potentially affect your down payment or loan pricing.
How about asking the seller to carry back a second piggyback mortgage to qualify for a decentsized home instead of living in a shoebox? This could garner the buyer cheaper payments and avoid mortgage insurance.
“The biggest obstacle for homebuyers is down payment,” said Brad Seibel, head of mortgage at Sage.
Say, for example, a buyer with a 760 middle FICO score and strong job history agrees to put 5% down, or $25,000, on a $500,000 purchase. The seller could agree instead to carry back a second mortgage of 15%, or $75,000, at a monthly interest-only payment of
6%, with a balloon payment due in five years.
The seller also would need to agree to pay 1.125 in points to offset added costs for keeping the first loan at 5%.
Assuming the buyer gets a 5.375% rate on a 30-year fixed for the first trust deed, he or she would pay $121 less per
month with the so-called piggyback second mortgage for the first five years. It also could mean the difference between qualifying or not.
Seller financing could provide an additional bonus for some home sellers: a capital gains tax delay.
“Seller delays any potential capital gains tax on the $75,000 until the buyer repays the principal balance,” said Jeff Hipshman, CPA partner at Eide Bailly LLP. “Any interest payments from the buyer to the seller are taxable to the seller as ordinary income.”
If you are angling for concessions in addition to getting your best price, collaborate with your mortgage loan originator and your real estate professional — especially if you are focused on a permanent mortgage rate buydown.
The 30-year fixed rate averaged 5.54%, 3 basis points higher than the previous week. The 15-year fixed rate averaged 4.75%, 8 basis points higher.
The Mortgage Bankers Association reported
a 6.3% mortgage application drop from the previous week.
Assuming a borrower gets the average 30-year fixed rate on a conforming $647,200 loan, last year’s payment was a mind-boggling $1,039 less than last week’s payment of $3,691.
Locally, well-qualified borrowers can get the following fixed-rate mortgages without points: a 30-year FHA at 5%, a 15-year conventional at 4.875%, a 30year conventional at 5.5%, a 15-year conventional high-balance ($647,201 to $970,800) at 5.25%, a 30year conventional highbalance at 5.75% and a 30year purchase jumbo at 5.375%.
a 30-year jumbo purchase mortgage with an interest-only payment for the first five years at 4.875%, without points.