The latest readings from the Consumer Price Index blew up the bond market Wednesday.
As the CPI increased 3.5% from one year ago March (higher than anticipated by many market participants), the 10-year Treasury bond exploded to 4.55%. It started the day at 4.35%. Consumers’ 30-year fixed mortgage rates tend to shadow the 10-year Treasury rates.
Freddie Mac’s 30-year fixed rate survey averaged 6.88%, just 6 basis points higher than last week.
Also see: How will house hunters find and buy homes, post-NAR settlement?
The weekly survey starts the previous Thursday through Wednesday at 11:59 p.m. The CPI report came out Wednesday morning. Timing is such that we’ll see the CPI and consequential bond market affect Freddie rates next week.
Undoubtedly, rates will top 7% with the next Freddie report. The Mortgage Bankers Association is already reporting a 7.01% rate.
Related: No relief this year for homebuyers, industry insiders predict
For perspective, one week ago, I reported that local borrowers could capture a 30-year fixed rate at 6.25% with 1 point cost. Today, that 30-year fixed rate is 6.625% at 1 point cost. Rates jumped 0.375%. Due to larger conforming loan sizes than the rest of the country, California mortgage rates tend to be cheaper than Freddie’s national survey numbers.
The principal and interest payment on $760,550 (maximum conforming loan amount) at 6.25% is $4,720. At 6.625% the payment is $4,908. The payment jumps $188 or 4% in the blink of an eye.
More on mortgages: Can you buy a home with nothing down? FHA has zero-down loan
“The CPI came in hotter than I expected. The Fed won’t ease until the fall with two rate drops,” predicted Mark Zandi, the chief economist at Moody’s Analytics. “Mortgage rates are close to 7% now. They will top out at 7.5%. This puts an end to home price increases.”
Zandi believes we’ll see mortgage rates close to 6% by the end of this year.
Jordan Levine, chief economist of the California Association of Realtors, also sees just two Fed rate cuts starting later this year. “Progress on inflation will be incremental with a couple of rate cuts later this year,” he said.
But Levine has a different take on mortgage rates. “We’ve already seen the high-water mark for rates.”
As for home prices, Levine continues to view an upward price march. He cites the tight labor market and low levels of unemployment.
California’s year-over-year home price increase in February was 9.7%. Days-on-market is down into the teens. And 50% of closed sales came in above their listed prices, according to Levine.
Here’s what it looks like from a buyer’s perspective.
Levon Melik-Avakian is a client of mine. He was looking to buy a 1,000-square-foot home in Sylmar on three-quarters of an acre. The seller was asking $1.1 million. Another buyer paid $1.2 million, according to Melik-Avakian.
“I considered buying it. It’s not sustainable at today’s (mortgage) rates and prices,” Melik-Avakian told me. “Is Sylmar going to become Brentwood? How high can it go?”
Most buyers, but not all, are discouraged by the home price affordability challenges, homeowners insurance prices and the general cost of living, such as going to the grocery store.
One buyer of mine (who asked to remain anonymous) was looking on and off for three years. He and his fiancée landed a Los Angeles condo for $920,000, closing just this week. “I think it’s a mix of luck and timing,” he said. “Delaying even one week would have been a much more expensive deal.”
Freddie Mac rate news
The 30-year fixed rate averaged 6.88%, 6 basis points higher than last week. The 15-year fixed rate averaged 6.16%, 10 basis points higher than last week.
The Mortgage Bankers Association reported a .1% mortgage application increase compared with one week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $308 less than this week’s payment of $5,038.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 6.125%, a 15-year conventional at 5.875%, a 30-year conventional at 6.625%, a 15-year conventional high balance at 6.375% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.99% and a jumbo 30-year fixed at 7%.
Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.
Eye-catcher loan program of the week: A 30-year jumbo at 6.5% adjustable after five years with one point.
Jeff Lazerson, president of Mortgage Grader can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.
Source: Orange County Register
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