Mortgage rates creep above 7%: What it means for homeowners and buyers

So you report here, mortgage rates now nearing seven five, uh Claire. What what is sort of a what's causing this latest spike higher, Claire? Break that down for us.

Yeah, Josh, this continues to be a bond yield story. We have seen bonds globally sell off in the past week. And every day that the 10-year yield is rising, means that mortgage rates are rising too. It's a reflection of the fact that investors are very worried about inflation. They think the Fed is likely to hike rates soon and that just means that right now mortgage rates are moving higher. This 30 basis point run up that we've seen this week is is pretty unprecedented. That is a huge week-over week jump and it's just making things a lot of a lot more expensive for anyone who wants to buy.

We I was going to ask you clear like let's put this in real dollars for folks. Like how much more would your monthly payment be than than Claire, then we were, you know, when we were at 675, which was just late August.

Definitely. So like let's say that you want to buy a $400,000 home and you're going to put 20% down. At 6.75, you would pay about $2,075 a month on your mortgage. But at today's rates, seven and a half, you are looking at a payment of over $2,200. So that's about $160 a month difference. Is that enough to knock people out of qualifying? You know, I don't know, maybe not, but I think the issue is just people look at these 7% mortgage rates and they say, I don't even want to start looking. I'm just going to keep renting. And people call that like kind of the psychological effects of these rates, and that's what I'm hearing from people. Uh buyers do not want to move in this market when rates are moving so much higher.

I I wanted to touch on that, Claire, like you look at this number, I mean what does this it suggest to you Claire about what's in store for the housing market as we, you know, roll into year end here?

Definitely. So the year end is always a slower time. Our busiest season is spring and we're well past that. But pretty much everyone I talk to says that, you know, this is pretty much the end of the season now. Um, if you were maybe that buyer thinking about jumping in and trying to get a fall bargain, you're probably less likely to do that now. And even before rates were rising, we were seeing signs that the market was weakening in terms of sales. And so I think this does not bode well for those September and October numbers that we'll get in a couple weeks.

Claire, switching gears, buyers looking at condos specifically, uh face another potential challenge. You got a new story out on that as well. talking about these kind of new financing rules, walk us through that.

Yeah, so Fannie May and Freddie Mack who uh helped support about 70% of the mortgage market, are tightening their rules for condo financing. And now they're doing this because they want condos to become safer. They want to make sure that HOAs have plenty of reserves and that the structures themselves are safe. And so what we are seeing is that very recently, all condos now have to undergo what's called a full review, which means that if you want to get a condo loan, they are going to do a deep dive into the condo's finances and the health of the HOA. Before, if you were a very qualified buyer, which meant that you had a really high credit score and a big down payment, you could kind of do a fast track limited review and get your loan faster. That's gone. And then in a couple of months in the new year, they are also going to require that HOAs put 15% of any assessment, a monthly assessment into those reserves to help them pay for big expenses. Right now, it's 10%. And so those are things that HOAs are going to have to prepare for, and if they don't, that means that people can't get regular loans to buy condos there.

So it sounds clear what you're saying is, okay, you could be a perfectly qualified buyer, um dot the eyes, cross the tease, but you can't get a mortgage because the building doesn't qualify.

Definitely. It's pretty crazy. They call these non-warrantable condos. Um there's a lot of them out there. It's not just these reserve rules that can put you on this list. If you're a condo with litigation, you can become a non- warrantable. Uh you can also go non-warrantable if say, um, you have other sort of issues with your structure. And it can put buyers in a bind. There are a few other options. Um if you can't get a regular loan, you could always buy with cash. You could also sometimes get what's called a non-qualified mortgage. But those are typically more expensive than regular financing and a lot of people just don't want to deal with them, and so they walk away. And so this is one reason that condos have really been in a lot of trouble. We're seeing prices fall, and these kind of changes, at least from the people I talked to, you know, they don't say that this is going to mess up the entire market, but it could certainly make it harder on the margins.

Claire, great reporting as always. Thank you.

Thank you.