Mortgage rate mayhem

Plus, Why cash is almost always king + Vibe shift — housing edition

͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌  June 18, 2022 | Issue #47

Good morning! This week we're mostly talking about mortgage rates — because do you really care about anything else right now? Mortgage rate mayhem I'm old enough to remember when mortgage rates were below 3% and seemed to hit a new record low every week. If you're reading this, you are too. The average rate on a 30-year fixed-rate mortgage, as measured by Freddie Mac, bottomed at 2.65% in January 2021 — just 18 months ago.   For about a year after that, tracking mortgage rates was pretty boring, TBH. The 30-year average plodded along between about 2.8% and 3.2%. Still low, but not historically-so. Everything changed when we welcomed 2022. Volatility returned and rates increased big time — but nothing was as dramatic as what happened this week. On Thursday, Freddie Mac reported that average rates had soared to 5.78% as a result of higher than anticipated May inflation numbers and the Federal Reserve's aggressive response to the price data.   The mortgage investor's weekly survey has not clocked rates this high since January 2008 — i.e. when George W. Bush was president, Lehman Brothers was still in business and Instagram didn't yet exist. Even though rates have been climbing for months, the move from 5.23% a week ago to 5.78% now is notable for several reasons. First off, rates haven't jumped that much in a single week — more than half a percentage point — since 1987. (i.e. Thirty-five years ago. Back then, Ronald Reagan was president, the Fox Broadcasting Company had just hit cable and the Berlin Wall was still standing. And oh yeah, I wasn't born yet.) For someone trying to buy a house right now, the jump is more than a bit of historical trivia. It could have an enormous impact on what house they can afford, and in many cases determine whether they can buy a house at all. Someone who took out a $400,000 mortgage at the average rate this week will pay $138 more each month than if they got a loan just a week ago. Even more shocking, that same borrower is paying over $600 more than they would have at the start of the year — when the average rate was just 3.22%. Meanwhile, chatter from lenders and other measures indicate that all but the most qualified borrowers should expect to be offered higher rates. Money's daily rate data has put the 30-year just shy of 7% for the last few days. (We look at rates for borrowers with lower credit scores than Freddie Mac does, among other differences.) Whether you are currently trying to buy or sell a home or not, you're probably wondering what comes next. The housing market has started to cool from the frenzied pace of the last two-years, but prices remain high, and inventory remains low. When that will start to change enough to offset higher mortgage rates is anyone's guess. Even Fed Chair Jerome Powell, who in a way set this whole thing in motion by raising short term interest rates, doesn't have a clear take. "We're well-aware that mortgage rates have moved up a lot and you're seeing a changing housing market," said Powell when asked about housing during a press conference Wednesday. "How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure." Before adding, "Obviously we're watching that quite carefully." Us too, Jay. Us, too. For more on the impacts of the Fed's rate hike read: What the Fed's Massive New Rate Hike Means for Your Money Why cash is almost always king   One group that doesn't have to worry too much about rising mortgage rates? Cash buyers. In her latest story for Money, Aly J. Yale explains why all-cash offers have become so common, why rising rates could make them even more prevalent — and why they win even if they are lower than competing bids. Vibe shift — housing edition Over the past two-years, the housing market has been defined by bidding wars, waived contingencies and sellers having all the power. It is too soon to call an end to all that, but there is clearly a vibe shift, if you will, happening in the housing market. For many homebuyers, this will mean taking a different tact than you might have just a few months ago. Leslie Cook has the latest tips on how to navigate a changing market. Happy hunting, Correction: Last week's issue contained a math error. There is a 73% difference between the current price is Boise, Idaho and the expected price based on historical trends. We said the expected price is 73% less than the current price. P.S. Connect with me on Twitter @samsharf or via email at sam.sharf@money.com. P.P.S. Have a friend who loves real estate or is looking for a home of their own? Please forward them this email or send them to the Money Moves subscription page. Money's Essential Home Buying Resources: Spring 2022 On the hunt? Check out Money's Mortgage Calculator, list of The Best Mortgage Lenders and look at the latest mortgage rates Thinking of refinancing? Our list of The Best Mortgage Refinance Companies can help. You can also use our Mortgage Refinance Calculator or these refi tips Key question: How much house can I afford?

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