The other day I noticed that mortgage rates were being advertised at very low rates.
Most of the quotes in the loan price table on my site were between 5 years.
That got me curious about how low rates can be with a favorable loan situation, such as a 760+ FICO, 20% down home purchase, owner occupied single family home.
So I headed over to Zillow’s Mortgage Marketplace to see what I could come up with.
Knowing that VA loan rates are usually very low, I gave it another shot and lo and behold, I saw 30-year fixed rates starting with a “4.”
I threw a screenshot up Twitter and he simply said, “Guys, it’s no longer a matter of the amount of the loan.”
What Did I Mean?
The tweet got a good amount of traction, probably because of those 4.875% 30-year fixed rate quotes in the screenshot.
And some felt that it is misleading to post such rates, which may not reflect the current borrowers’ universe.
After all, not everyone has a 760 FICO score or the ability to put down 20 percent, and they won’t qualify for a VA loan.
I also threw in two discount points, since most low rates advertised today require the borrower to pay a down payment at closing to get a “below market” rate.
In fact, you can’t put anything down on a VA loan and get the same rates since there are no changes in the price of the mortgage on those loans. The same goes for having a low FICO score.
So the loan situation was not as difficult to qualify for as it first appeared. And if I did this situation again today you could get an average of 4.75% with just one discount point.
But that was not the point I was trying to make. It wasn’t about the 4.875% rate versus the 4.75% rate, or the 5.25% rate. Any specific amount.
It was that the issue of the high level of the loan that we fixed two hours ago is over.
The real estate market today is no longer driven by the issue of quality. We exhausted it, and were initially caught off guard expecting prices to rise rapidly in early 2022.
Then they wonder how much higher they might go, if they ever reach the top of the 21st century (they didn’t!).
That was followed by wondering when they would start to fall again (they peaked last October and have been on a slow decline since then).
And so it’s no longer about rates.
If Not Values, What Now?
That brings me to my point. The housing market is now at a crossroads where high mortgage rates are unsustainable.
Many prospective home buyers today will see that mortgage rates have dropped significantly.
The 30-year fixed was actually averaging 8% just before last Halloween, and today it is closer to 6.25%.
As I’ve shown with mortgage value shopping, it’s also possible to drop that rate down to the high 4% range, or even the low 5%, even with a syndicated loan backed by Fannie and Freddie.
This means that anyone who has been thinking about buying a home for the past few years is no longer thinking about rates.
Instead, they likely consider other factors, such as housing prices, insurance costs, their job stability, the broader economy, and even elections.
If they were looking at homes where rates were close to 8%, they are certainly still looking at rates close to 5% (which could soon be without all the full FICO points and discount points).
But if they are no longer looking to buy, or have doubts, it is not because of high mortgage rates. Those who are no longer guilty.
Perhaps they are now concerned that asking prices are too high and may drop. Perhaps they are worried that the economy is faltering and a recession is coming.
After all, there is an expectation that the Fed will reduce its rate of feeding funds by 200 basis points next year.
That hardly reflects consumer confidence.
Finally We Find Out!
What makes me so happy now that mortgage rates are old news is that we are finally getting to “find out.”
By that, I mean we get to see how this housing market is performing in a period of slowing economic growth, with Fed rate cuts and potential rate cuts on the table.
Remember, the Fed wouldn’t be cutting rates if they weren’t worried about rising unemployment and a soft economy.
In other words, we will see what this housing market is really made of. As I have said many times before, there is no inverse relationship between mortgage rates and housing prices.
One does not go up when the other goes down. And vice versa. We have already seen house prices continue to rise as mortgage rates rise from 3% to 8%.
So is it possible that both house prices and home prices can go down in tandem? Of course. Allowed home depreciation is rare at first.
But finally we will put you to the test. And I’m looking forward to it.
(Photo: Brittany Stevens)
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
