Loan

Over 4 million mortgages issued since 2022 with interest rates above 6.5%

Want to hear some good news about mortgage rates that are much higher than they used to be?

Yes, I know this sounds silly, but hear me out. There are now millions of mortgages with interest rates higher than 6.5%, and many with interest rates higher than 7%.

There are also millions less of those with prices less than 5% lower than there were just two years ago.

Why is this good, you ask? Well, it means that the effects of mortgage rate fixing are starting to wane.

This also means that millions of borrowers could benefit from refinancing if rates eventually fall.

Nearly a quarter of mortgage holders have an interest rate higher than 5%.

the Latest This week’s ICE Mortgage Monitoring Report showed a significant shift in mortgage rates due.

While it was very common for a homeowner to hold a 30-year fixed rate loan at 2% to 3% a few years ago, it is less common today.

In fact, as of May, about 24% of home loan holders had a mortgage rate of 5% or higher, compared with just 10% two years ago.

At the same time, the number of mortgages with interest rates below 5% fell by about six million (5.8 million) compared to just the past two years.

And about five million (4.8 million) are lower at rates below 4%, thanks to borrowers selling their homes or in some cases seeking a cash-out refinance.

As homeowners with low interest rates get rid of their mortgages by selling or refinancing their home, a new group of homeowners with high interest rates is beginning to take their place.

Since 2022, four million new 30-year mortgages have been issued with rates above 6.5%, and of those loans, nearly half (1.9 million) have rates above 7%.

In other words, the combined mortgage rate owed by all homeowners rises.

This means that it is not normal for interest rates to be so low, which could mean fewer obstacles when it comes to selling and more inventory for sale.

Why is this good exactly?

In short, the shift from easy monetary policy to a hawkish Fed policy in just one year and the change wreaked havoc on mortgage rates and the housing market.

We went from 30-year fixed mortgage rates of 3% in early 2022 to over 8% by late 2023.

While the Federal Reserve does not control mortgage rates, it made a big splash after announcing the end of its mortgage-backed securities (MBS) purchase program known as quantitative easing (QE).

This means that the Fed is no longer a buyer of mortgages, which immediately lowers their value and raises the interest rates that other investors demand to buy them.

Meanwhile, the Federal Reserve has raised the federal funds rate 11 times from near zero to a target range of 5.25% to 5.50%.

Although this was clearly necessary to cool demand in the overheated housing market, it created a pool of rich and poor.

Homeowners with fixed mortgages of 2% to 4% for the next 30 years, and renters facing high prices and mortgage rates of 7% to 8%.

This discrepancy is not good for the housing market. It does not allow people to move to higher or lower housing, nor does it allow new entrants to enter the market.

As a result of the rapid divergence in prices between the rich and the poor, home sales fell sharply.

The same is true of refinancing, especially fixed-rate and fixed-term refinancing, which hurts many banks and mortgage lenders in the process.

But with the average mortgage rate outstanding rising, there will be a lot of activity in the real estate and mortgage markets.

Here Comes Mortgage (Well, Not Yet…)

If you look at the chart above, you will see that recent mortgage issuances have been dominated by high interest mortgages.

Home loan distribution with mortgage rates above 6% is set to rise in 2023 and 2024 as the 30-year fixed rate rises to its highest levels in decades.

While this has clearly weakened housing affordability and forced many borrowers out of mortgages, it is likely to become a cyclical challenge that improves every year.

Over time, low-interest mortgages will be replaced by higher-interest loans, and if mortgage rates slow as inflation slows, there will be millions of dollars available for refinancing.

In addition to easing mortgage rates and bringing more homes onto the market, which pays off underlying loans, we will also see more refinancing activity as new homebuyers take advantage of lower interest rates.

In fact, we’ve already seen that as the average 30-year rate has fallen about 1% from its peak in October 2023, in part due to a normalization of mortgage spreads.

Those who chose a bad time to buy a home (in terms of peak mortgage rates) were actually able to refinance their loan with a lower monthly payment.

If interest rates continue to fall this year and next, as is widely expected, we will see many more borrowers refinance their mortgages.

This will benefit both homeowners and the mortgage industry, which has traditionally relied on refinancing to maintain its volume.

Although times have been bleak over the past two years, it’s all part of the process.

A shift away from cheap money and back to reality could get things moving again, whether it’s through increased home sales, mortgage lending, or both.


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