The folks at cnbc debate the effects of higher mortgage rates here:
Diana said, “I’m not so sure that interest rates are worse than rising home prices. We have seen a spike in home prices because of low inventories and that’s a far bigger deal than rising mortgage rates going up a lot.”
If you purchase a home today, there is effect from both higher prices and rates. Let’s compare the difference in costs.
Here are two homes on the same side of the street in Carmel Valley for comparison. The first closed for $714,500 in April, and the second is the same model, asking $757,000-$777,000:
The jumbo-mortgage rates didn’t jump as dramatically this week as the conforming-loan rates. Let’s use a 0.50% increase for the example, and a 20% down payment:
House #1 – Sales price $714,500
$142,900 down payment
$8,574 closing costs (1.5% of loan amount)
$151,474 cash needed
$3,570/mo. PITIHOA at 3.875%
House #2 – Sales price $777,000
$155,400 down payment
$9,324 closing costs
$164,724 cash needed
$4,046/mo. PITIHOA at 4.375%
Today, you need $13,250 more cash, and be willing and able to pay an additional $476 per month to buy the same house than three months ago.
There were also four of this model that sold in the $600,000s last year.
Last June, there was a $680,000 sale, which with 20% down would have dropped you under the high-balance conforming loan limit. The difference? Cash needed was $22,895 less, and difference between the PITI payments was $661/month.
One answer? More creative financing.
In the video it was mentioned that credit standards could loosen. Hat tip to daytrip for sending this in:
Real estate agent Mickey Knickerbocker was as surprised as anybody when her client closed on a $905,000 Manhattan Beach town house using “piggyback” financing: a two-mortgage deal designed to minimize the down payment.
Popular during the housing boom, piggybacks all but disappeared after the mortgage meltdown taught banks and regulators a big lesson: Borrowers needed to have skin in the game. So the loans seemed like a throwback to the days of carefree lending, especially on such a pricey property.
“I don’t think, a year ago, I could have gotten loans that would have served this purpose,” Knickerbocker said. “I didn’t even know … that this was going to be possible.”
With home prices rising, risk is creeping back into mortgage lending. In addition to creative down-payment arrangements, mortgages on high-end properties — so-called jumbo loans — have also gotten plentiful and cheap. Meanwhile, banks are accepting borrowers with lower credit scores and allowing them to take on more debt relative to their incomes, experts and industry professionals say.