Which factors are impacting mortgage rates the most right now?

Homes in New York City | mortgage rate news

Which factors are currently affecting mortgage rates the most?

In a recent article from CBS News, their team spoke with mortgage and real estate experts to discuss factors that are keeping mortgage rates elevated. They chalked up the current rate environment to three key factors. First, inflation is stickier in housing than it’s been in other sectors of the economy, but it’s not just inflation. It’s also the Federal Reserve’s efforts to control inflation that have lead us to where we are.

Greg Forest, a senior global real estate advisor at Sotheby’s International realty, said, “The Federal Reserve has reacted swiftly to inflation concerns by implementing historic rate increases. In my opinion, too swiftly increasing caused a significant increase.”

The second key factor was prepayment risks. Peter Idziak, a senior associate at Polunsky Beitel Green, said, “The other major factor driving rates higher is that investors expect rates to decrease over the next few years. Mortgages they purchase today are likely to be paid off earlier than historical averages. To compensate investors for this prepayment risk, mortgage rates have had to move even higher.”

Treasury yields are cited as the third most important factor. Christine Cooper, the chief U.S. economist and managing director at CoStar Group, said, “Mortgage rates are higher than they would be in a calmer economic environment. A combination of factors drives this spread, including lenders’ perceptions of repayment risks and demand in the MBS market.”

Which myths should home buyers & sellers ignore?

While housing inventory remains tight nationally and June is a historically slow month for home sales, at least one market saw a surge in available homes in June.  

The Palo Alto, CA metro area saw 72 homes added to local inventory last month. The additional homes coming onto the market represented an 11% increase from June 2022. It appears that sellers in the area who weren’t committed to moving decided to take the plunge with homes still selling even with current conditions.

While Palo Alto appears to be more of an outlier than a trend, it goes to show that regional variance matters in the current market. It may be just a matter of time before the area you’ve been considering starts to see additional units come onto the market.The team at Realtor.com spoke to several industry experts and they revealed that there are several myths that folks looking to buy or sell a home are falling for.

According to the experts surveyed the biggest myth right now in the housing market is that we’re heading for a 2008-like market crash. While the echoes of 2008 may still be fresh in the minds of folks that lived through it, the current housing market isn’t anything like what occurred almost 15 years ago.

In 2008, there was a glut of new homes that were going up and it was followed by a surge in lenders giving loans to borrowers who were unable to pay them back. Chris Ragland, principal at Ragland Capital, said, “That access to credit included a surge in lenders offering loans to buyers with lower credit scores, or subprime borrowers.”

When the job market turned sour, a lot of people who had loans they shouldn’t have gotten were unable to make their mortgage payments. “Subprime borrowers in particular who suffered a job loss had little to no accumulated equity in their homes,” says Ragland.

None of these conditions are true for the current housing market. Almost half of current homeowners have more than 50% equity in their homes, and “Laws were passed in 2010 to strengthen verification of a borrower’s ability to repay a loan,” says Ragland.

New York state legislature orders several housing measures

New York Governor Kathy Hochul announced several executive orders on Tuesday to support affordable housing efforts. Hochul issued a series of executive orders to mitigate the current housing shortage that she made a key part of her platform.

The actions enable developers of projects in the Gowanus neighborhood of Brooklyn get tax breaks to facilitate housing construction, and orders to allow housing development on land owned by state agencies.

New York has been slower to make changes to housing laws and restrictions, but Tuesday’s actions demonstrate a willingness to move forward.  

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