“I haven’t seen a dry spell like this in the time I’ve been in business,” Bob Yopko, president of First Equity Residential Mortgage, said of this year’s spring homebuying season.
The purchase market is locked up with a lack of inventory thanks to elevated rates and homeowners already having secured low mortgage rates during the pandemic years. This, in turn, has made business brutal, Yopko explained.
The still-high mortgage rates that have been killing Yopko’s business averaged 6.39% as of May 4, a decline from last week’s 6.43%, according to Freddie Mac’s primary mortgage market survey (PMMS). Rates averaged 5.27% during the same period a year ago.
“This week, mortgage rates inched down slightly amid recent volatility in the banking sector and commentary from the Federal Reserve on its policy outlook,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Mortgage rates tend to align with the 10-year U.S. Treasury yield, which traded at 3.38% on Wednesday compared to 3.43% about a month ago.
“Mortgage rates spreads are bad now, meaning mortgage rates should be a lot lower today versus the 10-year yield,” Logan Mohtashami, lead analyst at HousingWire, said.
With financial credit getting tighter and the Fed no longer buying mortgage-backed securities (MBS), it has been hard for the spread to get better in this environment, Mohtashami explained.
“Mortgage rates should be 5.55%, not 6.5%,” he said.
Slower housing market
With mortgage rates remaining elevated, many sellers feel locked in by their current low mortgage rate. As a result, swaths of homeowners are planning to wait until rates come down before selling, leading to fewer newly listed homes compared to a year ago.
“The housing market is moving slower this spring. In a typical year, we would expect to see the number of homes for sale begin to increase more significantly from this point forward,” Jiayi Xu, an economist at Realtor.com, said.
Buyers who are still interested in buying in the busiest season for the residential housing market are acclimating to the current rate environment, Khater noted, but the lack of inventory remains a primary obstacle to affordability.
Due to limited options available on the market, buyers are increasingly turning to newly constructed homes, Xu added.
Another source of frustration for buyers are the new Federal Housing Finance Agency (FHFA) loan-level price adjustments (LLPAs) that went into effect May 1. The FHFA’s “revamped” LLPA matrix differentiates pricing by loan purpose, with grids for purchase loans, limited cash-out refinance loans, cash-out refinance loans and additional LLPAs by loan attribute.
One goal for the changes was to make homeownership accessible for first-time homebuyers and those with low and moderate incomes. But the new changes have faced pushback from the industry, with opponents claiming that the LLPA adjustments are penalizing middle-class American families by raising fees on good-credit borrowers while lowering fees for higher-risk borrowers.
“According to this new policy, well-qualified borrowers with scores ranging from 680 to above 780 may need to pay slightly more than before to offset the reduction in fees charged to buyers with low credit scores,” Xu said.
In the weeks ahead, the Mortgage Bankers Association (MBA) expects the ongoing uncertainty in the financial markets to keep mortgage rates volatile, but expects rates to ultimately fall below 6%-levels.
“We still anticipate they will fall, ending the year closer to 5.5%,” MBA President and CEO Bob Broeksmit said.