Mortgage & Finance

It has been in the news lately about how some home buyers who bought houses in 2022 are “underwater” on their mortgages. In this case “underwater” means that borrowers owe more on their house than they could get for it if they sold it.

This scenario isn’t at all unusual. I will venture to say that most people end up owing more on a house than they can get for it if they sold it a few months after they bought it. This is especially true if the downpayment was low.

Home prices are still rising here in Minnesota. Maybe in six months or so those “underwater” homeowners will be above water again. Maybe it will take a year or even two.

The first payments on a thirty-year mortgage are mostly interest. People who bought their houses recently probably have low-interest rates which makes it easier to build equity. If you bought a house in St. Paul during the last two years and have somehow lost money on it you may have paid too much for it.

Being “underwater” doesn’t matter at all unless the homeowner has to sell. My advice has always been the same. Buying a house is a long-term commitment. People who plan on moving in the next few years should rent instead of buying.

If you think you may owe more on your house than what you owe on it and live in the metro area my advice is to keep calm and keep making those payments. If you can not make them due to job loss contact your lender immediately.

When the Federal Reserve raises the prime rates which are not the same thing as mortgage rates. The prime rate is the lowest rate at that money can be borrowed commercially and it does affect interest rates.

Generally speaking small variations in mortgage interest rates don’t have much of an impact on the housing market. Large variations do have an impact. Right now fewer people can afford to buy a home. Home prices are still rising but will eventually flatten out and then decline.

 

It has been a couple of decades since we have seen 7% interest rates on mortgages but they are back. The last time they were this high was about 20 years ago or so. I remember it well.  Back then the median sale price of a house in St. paul was around $160,000, as compared with the current median home sale price of $275,000. Wages have gone up about 19% in the last 20 years.

If you bought a house the last time the rates were around 7%  congratulations. It was a good investment after all. 

Points are back too. To get the 6.94% interest rate the buyer has to pay a partial point. A point is 1% of the mortgage amount and is paid upfront to lower the interest rate.

It is likely that rates will go down again eventually but there isn’t any way of knowing when they will go down or by how much. Higher rates are slowing home sales but they are still defiantly selling, and quickly too. We are also seeing more price reductions.

No, we are not in a buyer’s market because of the high demand for housing. The higher rates will cool the housing market.

 

 

Mortgage interest rates have more than doubled in the last year. Mortgage interest rates are not at an all-time high but housing prices are and they continue to rise due to strong demand.

Some economists are predicting that home prices will go down in 2023.  Locally homes are selling in less than 25 days on average and for slightly more than the asking price. I’ll have some more numbers later in the week.

Historically higher interest rates cause a slowdown in housing appreciation.

Current mortgage rates are up but they are still fairly low at the same time the price of a house is at an all-time high. The last time the rates were as high as they are today was back in 2008. Mortgage applications are down. They ticked up slightly in August when rates went down but are down by more than 20% from this time last year.

 

*updated 9/15/2022 Mortgage interest rates at 6.2% the highest since 2008.

Don’t expect interest rates to go down. By historic standards they are low. Federal Reserve chair Jerome Powell told us on Friday that the Federal Reserve will fight inflation and there will be some pain. Mortgage rates went up last week but are slightly lower than they were in June. Housing prices are still rising the rates may slow that down a bit.

It won’t be the wealthy who feel that pain it will be the poor. Powell didn’t say that but we all know that it is true.

As for the rates in the chart they are averages and they are the rates that borrowers with good credit ratings get.