Good morning!This week we’re talking about tricky mortgage rates, a mortgage underwriting change and rent price reductions.
Mortgage rate fright fest
Jose Velez; Money
Welp. It happened.
Thirty-year mortgage rates crossed 7% this week, fulfilling every homebuyer’s worst nightmare just in time for Halloween.
People — mostly people who made their last mortgage payment long ago or (horror) whose current rate starts with a two — might try to tell you it’s not so bad.
Historically, a 7% rate isn’t that high, they’ll say.
In 1981 rates hit 18.63%, they’ll say.
True enough.
As a point of fact, rates have averaged 7.8% since Freddie Mac started tracking in 1971. That’s cold comfort, however, in today’s high-inflation, low-housing-stock environment.
Whatever happened 40-years ago, there is no denying that today’s first-time homebuyers — average age 33 — are facing a much tougher mortgage rate environment than they were earlier this year.
Rates have not been this high in two decades, but it’s the speed of the rate increase that’s truly frightening.
A year ago, rates were just 3.09%.
On Labor Day, they were still below 6%.
Talking to Money’s Leslie Cook, Jerimiah Taylor, of housing tech company OJO Labs, likened the change to driving at 150 miles an hour and then abruptly slowing down to the speed limit.
“Suddenly that speed limit feels real slow in comparison to how fast you’ve been going,” he says.
Many people who might have wanted to buy were priced out somewhere on the ride between 3% and 7%. After all, a higher rate means monthly payments are now hundreds or even thousands of dollars more even if the actual home price is the same.
For people who can still afford to buy, however, there is a treat. Less competition means a less frenzied buying experience and maybe even lower prices.
New government rules about the credit scores mortgage lenders use to evaluate borrowers were announced this week. It’s a wonky fix that’s been in the works for years.
You can read my story for the details, but the main thing to know is that information about a borrower's rent, utility and phone payments will be factored in.
If all goes as advertised, the rule has the potential to help many more households qualify for mortgages. That’s a big if, though.
No timeline for implementation was announced and, as with most big changes, experts warn of unintended consequences.
“Greater adoption of alternative data alone is not enough to produce equity-enhancing outcomes,” wrote researchers at the Urban Institute. “It is essential to recognize the degree to which systemic racism is embedded in the housing finance system.”
Relief for renters
At last, some good news for renters.
After 12 months of double-digit year-over-year growth, the national median rent increased just 9.2% from October 2021 this month.
Plus, rents dropped or stayed flat in the vast majority of major markets, according to a new report from Zumper.
Be careful what you wish for. For years homebuyers and housing experts have been praying for more inventory. Inventory is up — but not for the best reasons.
Remember that $250 million listing I shared a few weeks ago? Well, Zillow Gone Wild spotted another eye-popping stat. Common charges and taxes total $74,638 a month.
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: Fall 2022
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