Real Estate Matters in Charleston SC – Gena Glaze

Mortgage rates continued to surge higher last week, and that brought borrowers out of the woodwork, looking to refinance. While that might seem counterintuitive, given the higher rates, there are still a significant number of borrowers who could benefit from a refinance, and they may have been worried that this was their last chance.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 3.78% from 3.72%, with points decreasing to 0.41 from 0.43 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association. That was the highest rate since March 2020. One year ago, the rate was 86 basis points lower.

With rates now clearly on the upward trajectory, mortgage applications to refinance a home loan jumped 18% week to week, seasonally adjusted. Volume was still 50% lower than the same week one year ago. The refinance share of mortgage activity increased to 57.3% of total applications from 55.8% the previous week.

Homebuyers rush to buy before interest rates rise again

Mortgage rates sat near record lows for the better part of last year, but not everyone who could benefit refinanced. As of now, roughly 5.9 million borrowers could still save enough to make the process worth it, according to a recent analysis by Black Knight, a mortgage technology and data provider. That number was about 11 million at the start of this year and as high as nearly 20 million in late 2020.  

“There has likely been some recent volatility in application counts due to holiday-impacted weeks, as well as from borrowers trying to secure a refinance before rates go even higher,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Mortgage applications to purchase a home increased 4% for the week but were 7% lower than the same week one year ago. Buyers have been uncharacteristically busy this January, with some concerned that rising rates will price them out of the already expensive housing market by spring.

Anecdotally, real estate agents say they could easily have more sales if there were more listings. The current supply of homes for sale is at a record low, with inventory especially lean at the lower end of the market. That’s why most of the activity is now at the higher end.

“The average purchase loan size hit a new survey high once again at $441,100. Stubbornly low inventory levels and swift home-price growth continue to push average loan sizes higher,” Kan said.

cnbc 2/2/2022

If you were thinking about buying a home this year, but already pressed pause on your plans due to rising home prices and increasing mortgage rates, there’s something you should consider. According to the latest report from ATTOM Data, owning a home is more affordable than renting in the majority of the country.

The 2022 Rental Affordability Report says:

“. . . Owning a median-priced home is more affordable than the average rent on a three-bedroom property in 666, or 58 percent, of the 1,154 U.S. counties analyzed for the report. That means major home ownership expenses consume a smaller portion of average local wages than renting.”

Other experts in the industry offer additional perspectives on renting today. In the latest Single-Family Rent Index from CoreLogic, single-family rent saw the fastest year-over-year growth in over 16 years when comparing data for November each year (see graph below):

Molly Boesel, Principal Economist at CoreLogic, stresses the importance of what the data shows:

“Single-family rent growth hit its sixth consecutive record high. . . . Annual rent growth . . . was more than three times that of a year earlier. Rent growth should continue to be robust in the near term, especially as the labor market continues to improve.”

What Does This Mean for You?

While it’s true home prices and mortgage rates are rising, so are monthly rents. As a prospective buyer, rising rates and prices shouldn’t be enough to keep you on the sideline, though. As the chart above shows, rents are skyrocketing. The big difference is, when you rent, that rising cost benefits your landlord’s investment strategy, but it doesn’t deliver any sort of return for you.

In contrast, when you buy a home, your monthly mortgage payment serves as a form of forced savings. Over time, as you pay down your loan and as home values rise, you’re building equity (and by extension, your own net worth). Not to mention, you’ll lock in your mortgage payment for the duration of your loan (typically 15 to 30 years) and give yourself a stable and reliable monthly payment.

When asking yourself if you should keep renting or if it’s time to buy, think about what Todd Teta, Chief Product Officer at ATTOM Data, says:

“. . . Home ownership still remains the more affordable option for average workers in a majority of the country because it still takes up a smaller portion of their pay.”  

If buying takes up a smaller portion of your pay and has benefits renting can’t provide, the question really becomes: is renting really worth it?

Bottom Line

If you’re weighing your options between renting and buying, it’s important to look at the full picture. While buying a home can feel like a daunting process, having a trusted advisor on your side is key. Let’s connect to explore your options so you can learn more about the benefits of homeownership today.