To buy a house? Get ready for a 6% mortgage

The 6% mortgage is back.

For the first time since 2008, according to a widely followed survey, the average interest rate on a 30-year fixed-rate mortgage rose above 6%, marking a dramatic explosion in borrowing costs.

The jump – the latest in a series of mortgage rate hikes this year – has the potential to further dampen a slowing housing market and make falling home values ​​more likely.

“It reduces your ability to buy,” said Jeff Lazerson, president of brokerage firm Mortgage Grader. “A lot of borrowers say, ‘Forget it. “”

Today’s environment is radically different from last year.

Second, the Federal Reserve’s easy money policies helped drive average rates below 3%. The houses flew off the market within days. House prices have skyrocketed.

But in recent months, inflation and the Federal Reserve’s efforts to combat it have sent rates skyrocketing and forced sellers and buyers to adjust to a new reality.

With shoppers able to afford less, many have decided to quit. Home sales are plummeting and home values ​​are showing signs of flagging.

In July, home sales in Southern California fell 35% from a year earlier, according to real estate firm DQNews. The six-county area’s median price — the point at which half the homes sold for more and the other half for less — slipped to $740,000 in July. This is 2.6% below the historical peak of this spring.

The July median, buoyed by strong demand earlier in the year, was 8.8% higher than a year earlier. But in April, the median price in Southern California was nearly 17% higher than a year earlier.

On Thursday, mortgage giant Freddie Mac announced that the average rate on a 30-year fixed mortgage stood at 6.02%, down from 5.89% the previous week and 2.86% a year earlier.

Year over year, an increase to 6.02% adds $1,105 to a monthly mortgage payment if you put 20% down on a $740,000 home.

Buying a $1 million house? It will be $1,494 more per month.

Many would-be buyers simply cannot afford such increases and a growing number of economists expect Southern California home prices to fall in 2023 from 2022, but by less than 10%. .

Few, if any, major analysts are predicting price declines similar to the Great Recession, when Southern California stocks fell 50% in two years.

Prices then crashed because there was a wave of forced selling at a loss – through foreclosures and short selling.

During this last housing boom, lending standards were much stricter and many homeowners choose not to sell in a weak market if they don’t have to.

Underscoring this, the number of new listings hitting the market each week is down from a year earlier, both in Southern California and elsewhere in the country.

In Los Angeles County, in the four weeks ending Sept. 4, there were 31% fewer new listings than a year earlier, according to real estate broker Redfin.

“Inventory remains insufficient,” Freddie Mac chief economist Sam Khater said in a statement released with Thursday’s survey. “This indicates that while the decline in house prices is likely to continue, it is not expected to be significant.”

The average rate on a 15-year fixed mortgage, popular with refinancers, rose to 5.21% from 5.16% the previous week and 2.12% a year earlier, according to the Freddie Mac survey .

The direction of rates from here is not entirely clear. This is largely because the interest paid by borrowers reflects what investors are willing to pay for repackaged mortgages in the secondary market.

Factors influencing this include Federal Reserve policy and the trajectory of inflation and the overall economy.

Given the uncertainty surrounding these factors, rates have been volatile over the past few months. After hovering around 6% in June, rates have fallen. They even fell below 5% in the first week of August, and some agents and industry analysts reported a slight recovery in demand.

Keith Gumbinger, vice president of research firm, said rates have since risen in part because the labor market has remained strong and investors see less chance of an immediate recession and a higher great chance that inflation will remain high.

Freddie Mac’s survey covers mortgages for people with great credit who have staked 20%, meaning many current homebuyers should expect higher rates than the survey average.

The last time rates were this high was in November 2008, when the 30-year mortgage averaged 6.04%.

Jordan Levine, chief economist at California Assn. of Realtors, said rates are expected to stay above 6% this year and could climb to 6.5%, giving him more confidence that California home prices will be slightly lower this year. next compared to 2022.

While the 6% rates aren’t historically high, Levine noted that today’s consumer needs to buy in a market where prices were set when rates were half of what they are today.

“It’s a big leap,” Levine said. “We haven’t seen this rapid increase in rates except in times of very high inflation.”

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