Mike’s Morning Mortgage Update – Rates vs appreciation?

8% interest rates have slowed the market a bit. Analysts say that rates below 6% will improve affordability and send us on another bull run. I know many of you need help with your sellers and buyers. Your sellers don’t want to drop the price, pay concessions, or do what you feel is necessary to sell now. Your buyers are still waiting on that crash that won’t happen; they think that affordability is terrible, and they will only settle on a home if everything is perfect and within their desired budget. So let’s look at 8% as a rate where everyone has unreasonable expectations, and let’s move forward to the future where rates are already lower, and we may see that 6% number sooner rather than later!

I will use a $900,000.00 house in my example today with a 20% down payment. At 8%, that payment is about $6430.00, including taxes and insurance. At 7%, you are at $5936; at 6%, you are at 5462; and at 5% you are at $5011.

We can agree that prices have started to come down with 8% rates, and we feel that values will stabilize at 7%. A payment at 7% is 7.7% lower than a payment at 8%. A payment at 6% is 7.99% than at 7%, so that when rates hit 6% we could see prices increase by 7.99%?

It could mean that. We can remember just a short time ago when buyers were out looking but couldn’t get an offer accepted because of the shortage of homes, and rates were in the high 5’s and low 6’s. The inventory has increased slightly, but we still don’t have even two months’ supply in most areas. A 5% rate has a 15.8% lower payment than a 7% rate and a 22.1% lower payment than an 8% rate.

We can all agree that payment matters, and if rates stay high, then we will see prices drop. If you agree that rates will be lower by the spring or summer, then now would be a good time to buy while prices are falling and before interest rates go down and prices go up. Affordability is pretty rough right now, but all of the numbers are lining up where now (the next few months) will be a better time to buy than in the future. I am telling my clients this, and I am sure you are telling your clients this, but the one thing I don’t want to say to my clients is, “I told you so,” and let them miss the boat! 8% rates created opportunity, but now we are looking at rates in the low to mid 7’s, and things may get better soon. I still feel there is an opportunity through January, but if rates do what I think they will do, then we will be back to multiple offers by February 1.

Condo / Townhome issues we know of now:

1. American Beauty Village – Insurance
2. Scenic Hills – Insurance
3. Mariposa – Litigation – Agreed upon, but not yet recorded
4. Bouquet Canyon Village – Insurance
5. Madison – Litigation
6. West Creek / West Hills – Insurance
7. Cornerstone – Insurance
8. Canyon Oaks – Insurance
9. Brookside Walk – Insurance – NEW as of last week
10. Shadow Ridge – Oak Park – Insurance
11. Cabrini Villas – Burbank – Insurance

Please let me know if you hear something new on Condos or Townhouses. We will see premiums increasing, likely increasing the HOA Fees soon!

Interest rates have had a great week, and we are almost back to our September 28 rate level. Economic data has been weaker this week, which is pushing rates lower. Let’s hope we turned the corner and rates slide downhill from here. It won’t be a straight ride down, but it looks good now.

• 12-day escrows if your buyer is pre-approved - Conventional / FHA / Jumbo / Bridge
• We do loans in all states, so call me with anything you need.  
• Government Loans (FHA / VA) are in the mid to high 6’s
• Conventional Loans up to $726,200.00 are in the 7’s
• High Balance Loans $726,201.00-$ 1,089,300.00 are in the 8’s
• Jumbo loans above $1,089,300 are in the 7’s and 8’s
• Bank statement loans - They are available with 10% down again! 8’s and 9’s depending on down and credit score.
• No income qualifier – 40% down with reserves! In the 7’s!
• 0 down loans are in the high 7’s – 660 credit score min right now, up to $740,000.00.
• Private Money lenders - hard Money Loans – 35% down!
• No Ratio Loans 30% down
• Debt Service Coverage loans with as little as 25% down
• Bridge Loans - are typically 8.49% with limited fees – But they get you where you need to go!
• 0 down California Dream for all Equity Share – Postponed until October???
• 3/2/1 Buydowns 2/1 Buydowns and 1/0 Buydowns are available at great start rates!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I am around all weekend if you have any questions or if someone is interested in buying a property! My cell is 661-714-6258, and my office line is 661-260-2970 ext. 2222. Please text me at 661-714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!