Otto Kobler is a branch manager at Summit Funding in Santa Rosa. The company specializes in home loans. Kobler is a loan officer, but there were times on Thursday, when he was talking about the recent and rapid rise in mortgage rates, that he sounded like a therapist.
“There’s a grieving process that people go through,” he said, “and at some point they come to terms with the reality that this is what interest rates are right now.”
As of Thursday, according to Freddie Mac – the Federal Home Loan Mortgage Corporation – the cost of a 30-year fixed-rate mortgage had edged above 6% for the first time since 2008, the result of “higher-than-expected inflation numbers this week. “
Although that number is only a little higher than last week’s rate of 5.89%, breaking the 6% barrier is “a psychological marker”, Kobler said, which will add to the “level of fear”. in which many home buyers now find themselves beset.
This 30-year fixed rate has doubled over the past year. This means that potential buyers whose loans were approved at 2.7%, 3.5% or 4.5% – meaning their debt-to-equity ratio was acceptable to the lender – are no longer eligible.
“We had this pandemic window when rates were so low” — 2.65% in January 2021, for example — “that it opened the homeownership window for a lot of people,” Kobler said. . “Now this window is closed.”
There are five stages in the famous Kubler-Ross model of grief. The final phase is acceptance – which Kobler encourages borrowers to adopt now. “If you hang on and say, ‘I need this rate back down to 3½% or 2½%’ – you’re going to keep waiting. Chances are it won’t come back.
With an interest rate of 2.5% on a $750,000 home, Kobler calculated the monthly payment would be $2,963. At 6%, that payment is $4,496.
It’s a lot of grief.
Ross Liscum urges people to keep things in perspective. Liscum, a Santa Rosa realtor affiliated with Century 21 NorthBay Alliance, is old enough to remember a time in the early 1980s when interest rates were 14%, 16%, even 18%. People were still buying houses.
“Where there is a will, there is a way,” he said. “People will find a way.”
The sun neither rises nor sets, he pointed out, on the 30-year fixed-rate mortgage. Lenders offer other products. “I think we’re going to see more of a shift to adjustable rate mortgages,” he speculated, noting that “you can get a three-year adjustable loan in the 4% range, with the state of mind that you will be refinancing when the market stabilizes in a few years.
Kobler agreed that some buyers would be eligible for a range of adjustable and “fixed-adjustable hybrid” loans. But lenders are limited in their creativity, “due to the creativity of the industry in 2004, 2005 and 2006”, he said, referring to predatory lending and unregulated markets that led to the financial crisis and real estate market in 2008. the bursting of the real estate bubble and the introduction of new regulations, “much of this creativity has been exhausted”.
There’s nothing close to a housing bubble happening right now, according to three Sonoma County real estate agents who spoke to The Press Democrat.
Ann Amtower, a real estate agent in Healdsburg, could not immediately answer a call from a reporter: she was busy showing a house to potential buyers. Describing what she has seen in her market over the past two and a half months, she used the words “normalization” and “stabilization”.
“We continue to be very busy,” said Amtower, which sells in Healdsburg, Cloverdale, Windsor and Santa Rosa. “But the frenzied multiple-offer scenarios” that were typical a year ago are much less common. It still happens, she says, but not as often. What she has seen in the past two and a half months, she said, is a “normalization” in her market.
Two things that haven’t changed, she says, are constant demand and a lack of inventory. Due to the low number of housing starts, “we have a stock of about 1 month and a half. A good solid inventory is more like five to six months.
Although she has seen a drop in sales since the spring, “I think it has as much to do with inventory as anything,” she said.
“We always have a steady demand for home ownership, and that’s in all price ranges.”
Amtower is getting fewer calls, she added, from people looking for second homes and vacation homes in the area – from several calls a week a year ago “to now maybe one a week. “.
It’s true, demand for homes is down, compared to the height of last spring’s “frenzy”, admitted Jeremy King, a Petaluma-based real estate agent affiliated with Coldwell Banker. But all of that can’t be kicked out of an interest rate hike.
“It’s a combination of different things,” he said, “the economy in general, the stock market, the uncertainty about what’s going on between Russia and Ukraine – people just have a lot of worry.”
This slowed down its activity, but did not stop it. Not by far. On Thursday, King was busy drafting an offer on behalf of clients offering $190,000 more than the asking price of a house in Petaluma, with no contingencies. He was preparing another offer for various buyers offering $250,000 more than the asking price on another property, even though, in all fairness, that property was “significantly undervalued”.
While it was common for a house to get “eight, 10, 12 offers” just six months ago, “now we usually see one to three,” King said.
As usurious as it may seem today, a 6% interest rate falls, historically, “between the middle and low of mortgage rates,” said Robert Eyler, an economics professor at Sonoma State University.
Right now, he pointed out, “you have a bunch of homebuyers who turned 18 in 2008 when interest rates were pushed almost to zero” – the Federal Reserve’s response to the subprime mortgage crisis.
Members of this demographic, he said, “have spent most of their lives on this planet with mortgage rates at historic lows.”
He concludes on a muted, optimistic note: “It is assumed that rising rates will ‘eventually force asking prices down,’ as people begin to pull away from the housing market,” he said.
“Most housing forecasts, including those for Sonoma County, suggest prices may actually contract over the next 12 months.”
You can contact editor Austin Murphy at austin.murphy@pressdemocrat.com or on Twitter @ausmurph88.
