New Jersey Real Estate Report

From Fortune:

Homeowners who held onto a 3% mortgage rate are becoming ‘accidental landlords’

The era of lower-than-ever mortgage rates is long gone, and it’s been replaced with rates hovering around 7%. But homeowners who locked in lower ratesbefore or during the Pandemic Housing Boom aren’t selling. In fact, some of them are becoming “accidental landlords,” simply because they don’t want to lose their low rates of the past. 

That being said, the so-called lock-in effect is putting pressure on both sides of the market. There aren’t as many buyers looking for new digs and not as many sellers looking to move up or downsize, if they’ll get stuck with a mortgage rate more than twice as high as their old one.

Redfin’s chief economist Daryl Fairweather told Fortune that high rates are constricting activity. “They’re looking at their monthly payment, which is quite low if they locked in a 3% mortgage rate compared to what their monthly payment would be if they sold and bought again, which would be quite high given how high mortgage rates are,” Fairweather said. “And it just makes a lot of sense for them to hold on to that low interest rate.”

Although rates are down from their 7.37% peak, the 30-year fixed mortgage ratecame in at 6.57% on Monday. According to Goldman Sachs, 99% of borrowers have a mortgage rate lower than the current market rate. 

So if you took on a $700,000 mortgage with a 7% rate, your total monthly payment would be $4,657. But with the same size loan at a 4% rate, your monthly payment would be $3,342. Let’s say it’s a 3% rate with the same size loan, your monthly payment would be $2,951. It’s the golden-handcuffs of mortgage rates, and it’s keeping homeowners with low rates from selling and turning some into landlords.

Fairweather said there’s both anecdotal evidence and data showing that homeowners are holding on tight to their low rates. For example, new listings of homes for sale fell 21.7% year-over-year for the four-week period ending March 5, making it the biggest decline in two months, according to Redfin. In the same period, the biggest declines were seen in Sacramento (at -45.6%), Oakland (-44.5%), Portland (-42.3%), San Jose (-42.1%), and Seattle (-41.2%). 

Michael Zuber, author of One Rental at a Time and former tech worker turned real estate investor, told Fortune that a 30-year fixed mortgage at a rate of 3% is without question one of the best assets most homeowners will ever have. 

“They shouldn’t sell, they should rent it out,” Zuber said, adding that several people on Twitter have told him they’re making around $1,000 a month after expenses from doing exactly that, sarcastically adding that the prospect of that “doesn’t suck.” 

From CNBC:

Home sales spike 14.5% in February as the median price drops for the first time in over a decade

Sales of previously owned homes rose 14.5% in February compared with January, according to a seasonally adjusted count by the National Association of Realtors. That put sales at an annualized rate of 4.58 million units.

It was the first monthly gain in 12 months and the largest increase since July 2020, just after the start of the Covid-19 pandemic. Sales were, however, 22.6% lower than they were in February of last year.

These sales counts are based on closings, so the contracts were likely signed at the end of December and throughout January, when mortgage rates had fallen sharply. The average rate on the popular 30-year fixed loan hovered in the low 6% range throughout January after reaching a high of 7% last fall.
…

Higher mortgage rates have been cooling home prices since last summer, and for the first time in a record 131 consecutive months — nearly 11 years — prices were lower on a year-over-year comparison. The median price of an existing home sold in February was $363,000, a 0.2% decline from February 2022.

That lower median price could be a sign that homes on the more affordable end of the market are selling.

Sales might have been even higher were it not for what is still very low supply. There were just 980,000 homes for sale at the end of February, according to the Realtors, flat compared with January. At the current sales pace, that represents a 2.6-month supply. A balanced market between buyer and seller is considered a 4- to 6-month supply.

“Inventory levels are still at historic lows,” Yun added. “Consequently, multiple offers are returning on a good number of properties.”

This could start to heat prices again, but with mortgage rates now higher than they were in January it will be harder for some buyers to compete.
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All-cash sales accounted for 28% of transactions in February, down from 29% in January but up from 25% in February 2022. Individual investors returned, making up 18% of buyers, up from 16% in January but down from 19% in February 2022.

When looking at sales at different price points, they were all down in the range of 20% from February last year, with sales down the most in the top, million-dollar-plus segment.

From Mortgage News Daily:

Mortgage Rates Head Back Over 7% After Powell Testimony

Jerome Powell is the Chair of the Federal Reserve–the entity that sets overnight lending rates in an attempt to keep inflation in a low, stable range.  Inflation has been anything but low and stable recently, so the Fed has hiked overnight rates at the fastest pace in 40 years.

Mortgage rates have also risen at the fastest pace in 40 years, but they are not directly dictated by the Fed.  Rather, the Fed’s direct influence on overnight rates spills over to the rest of the rate market.  The longer the duration of any given borrowing term, the less connected the interest rate may be to the Fed Funds Rate.

Moreover, the market adjusts expectations for the Fed Funds Rate constantly whereas the Fed only officially hikes/cuts 8 times a year.  When the Fed meets again in 2 weeks, they will certainly be hiking rates again.  The only question is “by how much?” 

Markets had been steadfast in their expectations for a 0.25% hike, which is viewed as the minimum increment for a rate change from the Fed.  With some recent data indicating plenty of economic resilience and persistent inflationary pressures, calls have increased for a 0.50% hike.  

In a scheduled testimony before the Senate Banking Committee today, Fed Chair Powell stopped short of specifying a number for the next rate hike, but commented qualitatively on the need to hike faster/more than previously expected.  Markets consequently upped the odds for a bigger hike in 2 weeks as well as a higher ceiling expected by the end of 2023.

Again, the Fed Funds Rate doesn’t directly dictate mortgage rates, but there was a bit of spillover as market expectations shifted in the direction of “higher for longer.”  The average mortgage lender was already close to 7% for a top tier conventional conforming 30yr fixed scenario, and today’s weakness was enough to officially push us up into the low 7’s.