Mort­gage rates rise to a seven-year high

Lodi News-Sentinel - - FRONT PAGE - By An­drew Khouri

The av­er­age rate on a 30year fixed mort­gage is near­ing 5 per­cent, fol­low­ing a surge this week that put bor­row­ing costs at their high­est level since 2011, ac­cord­ing to Fred­die Mac.

The sharp in­crease in mort­gage rates — to 4.9 per­cent this week, from 4.71 per­cent last week and 3.91 per­cent a year ago — stems from the same rise in the over­all cost of bor­row­ing that on Wed­nes­day and Thurs­day sent stocks tum­bling. The ad­di­tional ex­pense threat­ens to cause more would-be home buy­ers to hold off on a pur­chase.

The rise in mort­gage rates from last year adds $251 a month to what pre­vi­ously would’ve been a $2,685 monthly mort­gage pay­ment on a $535,000 house.

Sam Khater, Fred­die Mac’s chief econ­o­mist, said ris­ing rates and home prices are putting “down­ward pres­sure on pur­chase de­mand.”

The hous­ing mar­ket was al­ready soft­en­ing. Na­tion­wide, sales of pre­vi­ously owned homes have posted year-over-year de­clines for six straight months. In South­ern Cal­i­for­nia, sales last sum­mer were the low­est in four years and the num­ber of homes of­fered for sale is creep­ing up. Home price growth, though still strong, is also eas­ing.

Real es­tate agents say higher rates are one rea­son would-be buy­ers seem in­creas­ingly will­ing to sub­mit low-ball of­fers or call it quits al­to­gether.

At the be­gin­ning of this year, rates surged over in­fla­tion fears be­fore flat­ten­ing out around 4.5 per­cent. Now rates are shoot­ing up again, in part over ex­pec­ta­tions the Fed­eral Re­serve will keep lift­ing its key short-term in­ter­est rate as the U.S. econ­omy grows stronger.

Fadel Lawandy, di­rec­tor of the Hoag Cen­ter for Real Es­tate and Fi­nance at Chap­man Univer­sity, said higher bor­row­ing costs will likely mean even fewer home sales and slower price growth. But higher rates shouldn’t de­rail the hous­ing mar­ket.

He noted the econ­omy is healthy and rates are still low his­tor­i­cally. Through much of last decade, the av­er­age rate on a 30-year fixed mort­gage hov­ered in the 6 per­cent range. In the 1990s, rates peaked at 10 per­cent — and a decade ear­lier, 18 per­cent.

“It’s still much cheaper to bor­row money than 10, 15 years ago,” he said.

Like many other economists, Lawandy doesn’t ex­pect val­ues to de­cline un­less there is a re­ces­sion, cit­ing the per­sis­tent mis­match be­tween sup­ply and de­mand in Cal­i­for­nia.

But while Rick Pala­cios Jr., di­rec­tor of re­search at John Burns Real Es­tate Con­sult­ing in Irvine, doesn’t ex­pect de­clines like last decade, he said de­clines are a real pos­si­bil­ity. Af­ford­abil­ity is al­ready at or near a break­ing point in many South­ern Cal­i­for­nia com­mu­ni­ties, and ris­ing mort­gage rates could be the thing that tips prices down­ward.

Fall­ing home prices be­come more likely if peo­ple in­creas­ingly be­lieve the mar­ket has peaked and can­cel their home searches, think­ing they’ll wait for a bet­ter deal. More home builders are telling the con­sult­ing firm they are see­ing ex­actly that.

“Con­sumer psy­che — peo­ple un­der­state how fast that that could change,” Pala­cios said.

Judg­ing the ex­act tra­jec­tory is par­tic­u­larly dif­fi­cult now, be­cause the mar­ket of­ten slows in late sum­mer and early fall be­fore pick­ing up in the spring. Dur­ing the six-year up­swing in prices, there have also been mo­ments when the mar­ket paused, even in spring, and then ac­cel­er­ated again. But that was ear­lier in the econ­omy’s re­cov­ery.

San Fer­nando Val­ley real es­tate agent Am­ber Dolle be­lieves that this slow­down is real. Re­cently, a would-be buyer on one of her list­ings re­quested that a small cos­metic crack on the garage floor be fixed. When the seller de­clined, the buyer walked — some­thing that wouldn’t have hap­pened a few years ago, Dolle said. Other of­fers fell through, and Dolle pulled the Va­len­cia home from the mar­ket. She and her client will try again in the spring.

But she’s not sure the tra­di­tion­ally strong spring sell­ing sea­son will live up to its rep­u­ta­tion.

“Be­fore, buy­ers were so des­per­ate,” she said. Now they’re start­ing to “put their foot down.”

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