Another favorable Consumer Price Index report helped to drive mortgage rates down this week, with general expectations growing that the Federal Reserve will not raise rates in December.
The Freddie Mac Primary Mortgage Market Survey for Nov. 16 put the 30-year fixed rate mortgage at 7.44, down from 7.5% a week ago but well above the 6.61% for the same time last year.
The 15-year FRM was 5 basis points lower, to 6.76% from 6.81% a week ago. A year ago, it was at 5.98%.
“For the third straight week, mortgage rates trended down, as new data indicates that inflationary pressures are receding,” said Sam Khater, Freddie Mac chief economist, in a press release. “The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the market.”
Even though the 10-year Treasury yield had backed down from touching the 5% mark in late October, at the start of this week it had ticked up to just south of 4.7%.
But once the CPI release on Tuesday indicated slower than anticipated growth in inflation, the yields turned downward again as the market became more convinced that the Federal Open Market Committee will not raise rates.
In the aftermath of the release, the 10-year was down to 4.43% on Tuesday. Rates have stayed close to that level, but as of 11:50 Thursday morning it was at 4.47%.
While mortgage rates and the 10-year Treasury move independently of the FOMC’s actions, investors typically bake their expectations into those longer-term instruments.
Data on the Optimal Blue website put the 30-year conforming at 7.409% on Nov. 15, up from 7.338% the previous day. But on Nov. 13, the 30-year FRM was at 7.534%. On Nov. 8, it was 7.444%.
Zillow’s rate tracker had the conforming 30-year FRM at 7.09% mid-morning on Thursday, up 5 basis points from Wednesday but down from last week’s average of 7.25%.
“Federal Reserve officials’ speeches, higher than expected retail sales and inflation data signaled that an immediate Fed policy reversal may not be in the cards just yet,” a Wednesday statement from Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said. “Although inflation is cooling and the market expects that the Federal Reserve may be done raising its policy rate, core inflation is still higher than the Fed’s target.”
But not all the news was bad, Divounguy said. That recent decline in the 10-year yield should ease financial and credit conditions. But increased government borrowing counters that, meaning that monetary policy has to remain in a restrictive phase.
Still, “so long as core inflation continues to move in the right direction, mortgage rates may finally start to level off,” said Divounguy. “Less rate volatility would be welcome news for prospective homebuyers.”
At a recent National Association of Realtors event, the group’s chief economist Lawrence Yun said that with a 4.4% 10-year yield, at a 200 basis point spread, the high end of historic norms, the 30-year FRM really should be at 6.4%. “The bond market is forcing the Fed to pivot.”
But Yun also believes that the Fed Funds Rate as well as mortgage rates, have peaked, but “the question is when are rates going to come down?”
He thinks the 30-year FRM will be between 6% and 7% for the spring 2024 home buying season.
Nigel Green, CEO of international asset management firm the deVere Group, does not think the Fed will raise rates in December.
“However, we believe there will be a sustained period of slower progress than we’ve seen up to this point against inflation in the flight to get it back to the 2% target,” he said in a press release. “Therefore, we except one more hike from the Fed next year to boost that progress a little.”
Redfin, in a Nov. 16 press release, not only states that the Fed is not likely to raise short-term rates this year, it is likely to start reducing them earlier than the markets expect.
The CPI for shelter, a lagging indicator, was up 0.3% from the prior month and 6.7% the previous year, noted Ksenia Potapov, an economist at First American Financial.
“As we head into 2024, rent and house price declines from the past year will increasingly drag down overall inflation,” Potapov said in a statement. “At this point, the Federal Reserve’s greatest inflation-fighting virtue will be patience.”
Marty Green, principal at the mortgage law firm of Polunsky Beitel Green, has believed for some time the Fed was done raising rates in this cycle, and “this report supports that,” he said.
“We expect the Fed to continue to keep their rhetoric about their readiness to raise rates if necessary, but believe, based on the trend of recent reports, that they will see little reason to do so,” Green wrote in an email.
Inside: Ever wondered how much rent you can afford on a particular hourly wage? Use the rent calculator to see what you can afford on $20 an hour. Find out from the experts in this guide.
Honestly, this is something most people don’t think about until after they get themselves in a troubling situation.
Determining rent affordability is paramount in your financial planning. It’s important to strike a balance between comfortable accommodation and fiscal responsibility to avoid financial strains down the road.
There exists a direct correlation between your income and the rent you can afford to pay. Higher income opens doors to pricier accommodations while lower wages might enforce budget constraints. Understanding this relationship is crucial.
It guides your housing decisions and helps maintain a stable financial footing.
By calculating your rent affordability, you can set a clear budget, establish your housing needs, and navigate the real estate market with ease.
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How much rent can I afford making $20 an hour?
If you make $20 an hour, based on a standard 40-hour work week, your gross income would come up to approximately $3,467 per month.
If you follow the 30% rule, this means you should allocate a maximum of $1,040 each month for rent.
$3467 x 30% = $1040
However, remember this is a rough estimate and your specific expenses and financial obligations should also be taken into consideration before deciding on a rent budget.
What Percentage of My Income Should Go to Rent?
This is a good question to consider.
Even better when you are trying to figure out how much to save before moving out.
The 30% Rule Explained
The 30% rule is a simple guideline suggesting that one should allocate no more than 30% of their gross (before taxes) monthly income toward rent.1
This rule of thumb has been widely adopted as a measure of rent affordability. The beauty of the 30% rule lies in its simplicity and ease of use, allowing for quick budgeting while maintaining room for other essential expenses.
Be Conservative and Stick with 20%
According to Money Bliss budgeting percentages, adopting a more conservative approach to budgeting by allocating only 20% of your income towards housing costs can be more beneficial.
If you follow the 20% rule, this means you should allocate a maximum of $693 each month for rent.
$3467 x 20% = $693
This strategy helps to account for additional expenses such as utilities, unexpected repairs, and other costs that often accompany home ownership or renting.
This reduced allocation promotes being smart with your money to avoid unnecessary financial stress.
When to Consider Stretching the 30% Rule
At times, it might be necessary to stretch the 30% rule particularly in high-cost areas or during short-term situations. It’s crucial, however, to understand the potential ramifications and adjust other spending habits to compensate.
A temporary overshoot could be justifiable if it leads to significant future benefits, like proximity to a well-paying job. Always remember, that this should be an exception rather than the norm.
How Does the Rent Calculator Work?
A rent calculator is a practical tool that aids in estimating the rent you can afford.
This simple calculator is based on your hourly income and spending either 20-30% of your gross income on rent.
Fine-tuning your budget is possible by adjusting the percentage you wish to spend on housing. Remember, the final number serves as a guide and may require adjustments based on your financial situation.
Breaking Down Your Monthly Budget
For savvy budgeters, adhering to the 50/30/20 rule can provide a clear framework for managing your expenses and growing your savings. While at Money Bliss, we went a step further to define it as the 20-50-10-20-0 budget rule. (save-basic expenses-give-fun spending-debt).
This approach gives a precise breakdown of your monthly budget, ensuring that you are living within your means while also setting funds aside for future financial security.
Housing Costs
The basic 50/30/20 rule suggests dividing your monthly net income into 50% for necessities such as rent and groceries, 30% for personal wants like clothing or travel, and designating the remaining 20% for savings goals or debt repayment.
By adding these to your housing budget, you get a realistic picture of your monthly accommodation costs.
When budgeting for rent, one must account for other housing costs. These may include utilities like gas, electricity, and water, as well as internet, cable TV, and trash collection. You might also need to factor in the renter’s insurance and potential parking fees.
Essential Living Expenses
In addition to housing, remember to consider essential living expenses in your budget. These include food, transportation, health insurance, and childcare.
In addition, we advise our readers to put aside about 15-25% of their net income for savings. Accounting for these factors ensures you don’t stretch your budget to the limit solely on rent.
Discretionary spending
While you need to cover essential living expenses, it’s also important to allocate funds for discretionary spending – we call it FUN spending.
This category involves non-essential purchases like eating out, entertainment, vacations, and shopping. Using the 50/30/20 rule as a guideline, 30% of your net income can be put towards these wants, allowing you to enjoy your income while staying financially sound.
Factors Influencing Rent Affordability
There are many factors that impact how much you can spend on rent. As such, this will vary from person to person as situations vary. While these numbers are gross income, you need to realize the amount of money coming out for taxes. Many people don’t understand gross income vs net income.
Furthermore, the cost of living and rental prices in your chosen location can greatly impact how much you can afford. So, use the rent affordability calculator!
Location and Rent Prices
The location of a home greatly influences its rent prices. HCOL vs LCOL is a real thing!
Proximity to the city center, schools, parks, and shopping centers typically equate to higher costs. For example, renting trends in 2023 indicated an increase in prices the closer you get to these amenities.2 By choosing to live a bit further out, you may be able to find more affordable rent payments.
Areas with higher crime rates will have lower rents but these tend to come with more issues.
Size and Type of Housing
The size and type of your dwelling can also significantly affect your rent. Large houses with multiple rooms naturally cost more, whereas smaller apartments or studios are less expensive.
The type of housing also plays a role; for instance, a modern, furnished apartment might cost more than an unfurnished one. Tailoring your choice to your needs and budget allows for comfortable living without overspending.
If you have a pet, don’t forget it may cost more plus you have a pet deposit.
Lease Length Considerations
Lease length can directly impact your rent. Longer leases often equate to lower monthly rents, offering landlords a sense of security. On the contrary, short-term or month-to-month leases typically come with a higher price tag due to their inherent flexibility.
Assess your personal situation and potential need for flexibility before deciding on the lease term.
Also, the amount you need to put down as a security deposit can be negotiated.
Tips to Maximize Your Rent Budget
Plan your budget carefully taking into account factors like income, potential expenses, and the cost of living in your chosen location. So, if you are thinking $5000 is enough to move out, you may be surprised.
Use the 30% rule as a guide but be aware that in high cost of living areas, you may need to adjust this percentage. When searching for a rental, compare the cost and amenities of different apartments in your preferred areas and see if there are nearby neighborhoods with cheaper rental costs.
Also, you may need to embrace cost-saving measures such as cooking at home and shopping frugally to free up more income for rent.
You can learn more about those areas on our site.
Tip #1 – Reducing Costs and Saving
There are several ways to reduce housing costs and save more in this tough rental market.
Consider downgrading to a smaller place or moving to a less expensive area.
Negotiate a longer lease term for a reduced monthly rent.
Maybe even consider becoming a permanent housesitter to free up your budget.
Small changes can lead to substantial savings over time.
Tip #2 -Planning for Future Rent Increases
Each year when your lease is about to renew, always factor in the possibility of future rent increases, which could be influenced by trends in the real estate market and inflation.
Ensuring your income can keep up with these increases is necessary for maintaining affordability. Continually reassess your rent affordability, especially during annual lease renewals or job changes.
Tip #3 – Get Roommates
Sharing your space with a roommate is a practical way to cut down on your living expenses substantially. By having one or more people to share the rental costs, utilities, and even groceries in some instances, you are likely to free up a considerable portion of your budget.
However, it’s important to clearly set boundaries and expectations to maintain a smooth living arrangement.
FAQ on Rent Affordability
Spending more than 30% of your income on rent is generally not advisable. It risks leaving you cash-poor, having insufficient resources for other important expenses like groceries, utility bills, health expenses, retirement savings, or emergency funds.
However, in certain scenarios like living in high-cost areas or prioritizing proximity to work (thus lowering your need for a car), bending the rule temporarily might be justifiable. Always reassess your budget to account for flexibility.
Yes, an increase in your hourly wage can slightly affect the amount of rent you can afford. The raise translates to an increased monthly income, which may enable you to comfortably afford higher rent.
However, it’s important to ensure this does not erode financial stability because lifestyle creep is real. Aim to maintain the key balance between comfortable living and responsible saving.
It’s recommended to reassess your rent affordability annually or when there’s a significant change in your financial situation.
Such changes could be a raise or decrease in income, new financial obligations, or plans to save for major future expenses. Regular evaluations ensure your housing budget aligns with your current financial realities.
Is $20 an hour a livable wage?
Given the average rent in the United States is $1702, $20 an hour is not a livable wage, especially in San Francisco or New York. As such, the maximum you should be spending on rent is $1040.
If workers are unable to afford to live in the communities they work in, it puts the whole system under stress. While there have been movements to create low-income housing, it is slow to happen and for many, difficult to apply.
Ultimately, whether this wage allows for a comfortable lifestyle depends largely on your financial habits, commitments, and where you live.
With good financial planning, including a solidly crafted budget that factors in rent, savings, and living expenses, a $20 hourly wage can indeed cater to a decent lifestyle.
Remember to reassess your budget regularly and adjust as necessary to meet changing financial landscapes.
Making wise financial decisions now can lead to a financially secure future. Now, do you have the habits needed to be financially stable?
Source
FiftyThirtyTwenty. “About.” http://fiftythirtytwenty.com/about.html. Accessed November 13, 2023.
Rent. “Rent Growth in Half of Suburbs Outpacing Metro’s Core City.” https://www.rent.com/research/suburban-growth-outpacing-core-city/. Accessed November 13, 2023.
Rent Cafe. “Average Rent in the U.S.” https://www.rentcafe.com/average-rent-market-trends/us/. Accessed November 13, 2023.
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A 2,855-square-foot unit is up for grabs in one of only a few condominiums located on the prime stretch of Central Park West.
And it has a coveted perk that’s hard to find in the middle of a bustling city: Park views from nearly every window!
The corner unit is located directly across the street from Central Park, between 88th Street and 89th Street on the Upper West Side, surrounded by lush greenery that can make you forget you’re in the very heart of one of the world’s busiest cities.
The condo unit is in the 279 Central Park West building, a 24-story, full-service condo designed by acclaimed architect and designer Costas Kondylis.
If the name sounds familiar, that’s because the prolific architect helped shape the New York skyline, designing over 85 buildings, many of them for former U.S. President Donald Trump. Specializing in luxury buildings and residential skyscrapers, Constantine “Costas” Kondylis was President Trump’s go-to designer, before passing away in 2018.
The 3 bedroom, 3.5 bathroom duplex home — listed for $7,750,000 with Harriet Kaufman of Coldwell Banker Warburg — offers kitchen and entertaining areas on the lower level and private bedrooms on the upper level.
The 279 Central Park West condo welcomes guests and residents with a charming foyer with a powder room, before leading them into an expansive 35-foot living and dining area, adorned with oversized bay windows that open up to panoramic Central Park views.
The oversized kitchen features top-of-the-line appliances, plenty of storage and counter space, and a large eat-in area with a south-facing window.
An elegant staircase then leads to the upper level, where we find the condo’s 3 bedrooms (all featuring en-suite baths) and a home office.
Future owners of the 279 Central Park West condo will get to enjoy the building’s many amenities, which include a gym, indoor/ outdoor playroom, bike room, and private storage.
But the biggest draw is by far the building’s stellar location and proximity to Central Park and all the best New York City has to offer.
And if extra bragging points are needed, a Rockefeller also lived in the building.
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There’s a certain level of luxury that most of us can hardly fathom.
And I’m not talking about ultra-luxurious 10-bedroom mansions, hobnobbing with some of the world’s biggest celebrities, or million-dollar private yachts, but rather the combination of the three.
A Jupiter, Florida property combines all of these elements — a killer waterfront location (with golf legend Tiger Woods living across the waterway), a newly renovated 9-bedroom house with all the bells and whistles, and a yacht dock — promising a lifestyle that’s more glamorous than that of a Real Housewife.
The price tag that lifestyle comes with?
$15,400,000 — at least that’s how much a buyer just paid to take the Jupiter house off the market. Rob Thomson, Managing Partner of Waterfront Properties helped seal the deal.
The house’s ties to Tiger Woods go deeper than the proximity to the iconic golfer’s property.
The $15.4 million waterfront estate was formerly owned by PGA star Jesper Parnevik and is the place where, according to our sources, Tiger’s ex-wife Elin Nordegren, lived (in the guest house, as a nanny) before Jesper introduced Elin to Tiger.
The perfect blend of luxury and privacy, the house was originally built in 2002 but recently underwent an extensive two-year renovation that perfected its interiors.
With plenty of room to accommodate a large family and guests, the Jupiter, FL house offers over 15,000 square feet of interior space, and has 9 bedrooms — 5 in the main house and an additional 4 in the guest house, which has its own private courtyard entrance.
The home is the perfect blend of luxury and privacy, and even has a 5th floor observation deck with views of the Atlantic Ocean.
Related: This is the Florida house Dan Bilzerian grew up in
Boasting sleek and clean lines, wood floors, and floor-to-ceiling picture glass windows with unobstructed Intracoastal views, the $15.4 million estate has a fully equipped kitchen with a pizza oven, custom cabinets, and countertops, tons of natural light, and extra generous water views.
The lavish owner’s retreat (which is basically a fancy way to call a primary bedroom when it comes with extra rooms and amenities) includes a stylish sitting room, TV lounge, custom closet, office, luxurious bath with dual sinks, and much more. It also overlooks the length of the intracoastal and Atlantic Ocean through floor-to-ceiling windows.
But the biggest draw is the property’s perfectly appointed entertainment level.
Featuring upscale amenities like a Trackman Golf Simulator, movie theater, exercise room with sauna and massage areas, full wet bar, and more, the entertainment level is a perfect cure for boredom, and it even has a fully equipped summer kitchen right outside its sliding doors.
The Jupiter, Florida house doesn’t disappoint when it comes to outdoor amenities either.
Outside, we find a private pool, spa, synthetic turf putting green, summer kitchen, and private beach, all benefitting from wide water views of the Intracoastal.
There’s even dockage for a large yacht plus a lift for other watercraft.
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There’s something almost whimsical about former sacred spaces being converted into residential homes.
Weaving together history, spirituality, and contemporary living, churches-turned-homes preserve the cultural heritage embedded within their walls but also redefine the concept of home in a deeply unique and symbolic way.
And that’s the case of a covered synagogue in the East Village, which is now one of the most unique and architecturally distinct homes in all of New York City. The historic East Village synagogue was converted into a sun-drenched townhouse nearly two decades ago — and it’s a sight to be seen.
The former synagogue was once known as the 8th Street Shul and served the Lower East Side’s Jewish community.
The building managed to survive two fires in the past century, but unresolved ownership issues left it unattended for years.
That was until 2005 when the building was sold to a real estate developer that revamped the property and turned it into an upscale private residence.
It’s now a breathtaking four-story home with impeccable interiors, dramatic 22′ ceilings, and walls of exposed brick and wood, specially designed for displaying artwork. And we’re here to take you on a quick tour.
With a dramatic living area — featuring 22′ cathedral ceilings, floor-to-ceiling walls of restored brick (east) and Wenge wood paneling (west), as well as a Cantilever balcony with a built-in projector for showcasing art — the former synagogue has been re-imagined as a space for art lovers, which only doubles down on the space being an art piece in itself.
The luxury home has 4 bedrooms, 2.5 bathrooms, and 3 wonderful outdoor terraces.
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Brought to the finest modern standards, the former synagogue features an expansive chef’s kitchen with Italian granite counters, a 20′ island, floor-to-ceiling custom-built Wenge cabinets, upscale appliances that cover every possible need, and some nice bonuses (like a built-in temperature/humidity-controlled wine cooler).
There’s also a separate elegant dining area with a restored 19th-century backlit Star of David.
On the 3rd level, the converted synagogue has a gorgeous library with custom-built floor-to-ceiling wood bookshelves, an Italian marble fireplace, and a wet sink/wet bar.
The 4th story has a fairly unique floor-to-ceiling glass hallway and secluded master bedroom, fitted with a custom-built working fireplace, huge walk-in closet, and opulent master bath packed with everything from an oversized Jacuzzi tub to walk-in shower with steam unit, rain shower, waterfall and separate hand-held shower.
To top that off, there’s also a hot tub that fits 8 people out on the master terrace.
Fun fact: The former synagogue even had a brief stint in a movie (though it’s worth noting that this was prior to its transformation), as the building was featured in Darren Aronofsky’s 1998 psychological thriller Pi.
Would you like to live in a converted church or synagogue?
*Editor’s note: This article has been updated for timeliness and accuracy. It was first published on June 25, 2020, as a news piece covering the property, which had just resurfaced on the market as a $30k rental.
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Other options include real estate investment trusts (REITs), exchange-traded funds (ETFs), and passively managed portfolios. Often overlooked are tax-managed funds, which offer a mix of passive and active real estate tactics. Note, however, that they are managed by a separate entity. The separation of management and investment tactics makes for more predictable returns and tighter … [Read more…]
There are many pros and cons to investing in a small town as opposed to a larger town. I have many properties in small towns and larger towns and personally, I think the small towns are overlooked based on the many advantages they have. Some of the major differences in small towns are the taxes, demand, building permits, and more.
Pros of investing in real estate in a small town:
There are many advantages to investing in smaller towns. I have found some great deals in them and there were many advantages I did not think of until I had bought and operated a property in those small towns.
Lower property prices: Property prices in small towns are typically lower than in urban areas. This means that you can invest more property for your money. This is because fewer investors are looking at small towns. I have found multifamily and commercial to be much cheaper.
Higher rental yields: Rental yields in small towns are often higher than in urban areas. This means that you can generate more income from your rental properties. This rental yield comes from the fact that rents might be a little lower but prices are even lower relative to those rents producing a higher ROI.
Lower vacancy rates: Vacancy rates in small towns are typically lower than in urban areas. This means that you are more likely to find tenants for your properties. I have found this to be true as well because there are very few rentals, there are often people waiting for anything to pop up.
Stronger appreciation potential: Small towns are often experiencing population growth and economic development. This can lead to stronger appreciation potential for your investment properties. If there is a shortage of homes in the area, you could see huge appreciation if those homes are cheaper than the cost to build.
Lower taxes: In my area in Colorado the small towns often have lower property taxes and lower sales taxes. The property taxes can save thousands of dollars a year on larger properties.
Less regulations: Some small towns are also much easier to build and remodel in. Each town has different building permit processes and requirements. Some towns could be stricter but some could be very easy to work with.
Cons of investing in real estate in a small town:
Limited buyer pool: There is a smaller pool of potential buyers for properties in small towns. This can make it more difficult to sell your properties when you are ready to do so. If the town has a surplus of homes, prices could stay stagnant for many years.
Less access to amenities: Small towns may have fewer amenities than urban areas, such as shopping malls, restaurants, and entertainment options. This can make it more difficult to attract tenants and buyers.
More difficult to manage properties: It can be more difficult to manage properties in small towns, as there may be fewer qualified property managers available.
Less liquidity: Properties in small towns are typically less liquid than properties in urban areas. This means that it may be more difficult to sell your properties quickly if you need to do so.
Local politics: Some small towns may be difficult to work with or treat outsiders differently if you do not live there. This is not always the case but I have been told I can’t do certain things with a property and then had someone buy it from me in that small town and do exactly what I asked to do.
Is it worth investing in a small town?
I have had amazing luck investing in small towns. One of the properties I bought was a 4 plex for less than $200k in 2018. That property would have been at least $300k in the larger town 10 miles away. I have also had great luck with commercial property and single-family flips as well. There are challenges and just because there are advantages to investing in a small town, that does not mean it is easy.
Conclusion
Before you invest in any property, make sure to research the local market and economy. This will help you understand the local roadblocks, rental yields, and surplus or shortages in the area. Talk to the city government, especially the zoning and permit people (they might be one person). Try to see if the population is increasing or decreasing and make sure you have contractors or property managers that will work in the area if you need them!
US mortgage rates are forecast to be higher than expected in the coming year, according to Goldman Sachs Research. Home prices are also projected to increase, even as borrowing costs remain elevated.
As interest rates have risen, 30-year-mortgage rates are now expected to be 7.6% at the end of 2023, up from the previous estimate of 7.1%, Goldman Sachs Research analysts Roger Ashworth and Vinay Viswanathan write in the team’s report. Similarly, the forecast for rates at the end of 2024 now stands at 7.1%, up from 6.8% previously. At the end of 2025, rates are predicted to be 6.6%.
The new forecast for mortgage rates reflects a steeper yield curve (longer-maturity Treasury yields are rising, which tends to increase mortgage rates) and Treasury yield volatility that remains “stubbornly high,” according to Goldman Sachs Research. The latter is keeping spreads (the extra interest a security yields relative to risk-free Treasuries) for mortgage-backed securities wide and is raising funding costs for mortgage originators. Over the past six months, the secondary market for MBS has begun to price in mortgage rates that stay “higher for longer.”
US home prices are forecast to climb
Meanwhile homes have appreciated despite the rise in borrowing costs: Prices grew in August by 0.9% month-over-month, reflecting an annualized 11% pace, according to Case-Shiller data. “The continued strength of the data surprised us,” Ashworth and Viswanathan write. Goldman Sachs Research expects home prices, adjusted seasonally and accounting for the full year, to appreciate 2% in 2023, 1.9% in 2024, and 2.8% in 2025.
Home prices have been buoyant amid tight supply. When it comes to existing homes, the inventory available for sale is historically low. New listings are being added at the slowest pace on record. And while new home inventory continues to rise statistically, most of this new inventory is still under construction.
Persistently higher interest rates are expected to dampen mortgage origination. Our analysts forecast $1.5 trillion in mortgages will be originated in 2024 — a figure similar to their full-year projection for 2023 — before rising slightly to $1.8 trillion in 2025. Meanwhile homeowners looking to sell their houses and buy new ones face the daunting prospect of having to prepay their current mortgages and take out fresh mortgages at today’s higher rates. This “lock-in” effect is projected to depress sales of existing homes to 3.8 million in 2024, the lowest level since the early 1990s, according to a separate report from Goldman Sachs Research.
US housing has become much less affordable
“An unfriendly byproduct of our forecasts for resilient home prices and limited rates relief is enduringly poor housing affordability,” Ashworth and Viswanathan write. The Goldman Sachs Housing Affordability Index touched a record low in late 2023, and is expected to improve only gradually over the next three years.
Affordability issues could explain why rent growth has been stronger than home price growth over the past 12 months, based on Zillow estimates. The payment gap between new mortgages and new rental leases has grown considerably across geographies (largely a function of mortgage rates), potentially encouraging first-time homebuyers to hold off purchasing a home.
“While rental affordability is also challenging in absolute terms, the stark deterioration in mortgage affordability has made renting more compelling for potential homeowners,” Viswanathan writes in a separate report.
This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.
Mortgage Q&A: “Is now a good time to refinance my home?”
If you’re one of the few people asking this question right now, the short answer is most likely no.
And the reason it’s a no is because mortgage rates have skyrocketed over the past 18 months or so.
But like everything else in the mortgage world, the answer does depend on the situation.
Not everyone has the same mortgage rate, nor do they have the loan product, or the same needs.
Very Few Homeowners Benefit from a Refinance Right Now
A refinance typically only makes sense if you can obtain a lower mortgage rate in the process
This is very difficult to accomplish at the moment with rates averaging 7%+
Most homeowners already refinanced a couple years ago when rates were priced around 3%
Refinancing will make sense again once rates fall and/or more borrowers take out mortgages at today’s higher rates (giving them a future refinance opportunity)
First things first, there are two main mortgage refinance options available to homeowners, including the rate and term refinance and the cash out refinance.
There is also the streamline refinance, which is a fast-tracked type of rate and term refinance.
For simplicity sake, a rate and term refinance allows a borrower to lower their interest rate, change their loan term, and/or switch loan products.
The cash out refinance allows a borrow to tap their home equity and perhaps change their rate, term, and loan product as well.
At the moment, very few borrowers are applying for rate and term refinances because interest rates aren’t favorable.
Conversely, everyone and their mother was applying for one back in 2020 and 2021, when mortgage rates hit record lows.
This made perfect sense because you could swap your existing 4-6% mortgage rate for one in the 2-3% range, or even in the 1% range if it was a 15-year fixed mortgage.
Rate and Term Refinances Are Virtually Nonexistent
Times have changed, and now that mortgage rates are closer to 7%, there’s very little reason to pursue a rate and term refinance.
A new report from ICE revealed that only about 5,500 rate and term refinances have been originated per month, on average, over the past year industrywide.
To put that in perspective, there have been roughly 650,000 rate and term refis funded each quarter going back 15 years.
Today, it’s closer to 16,500 per quarter, which is record low territory. It’s also a pretty clear sign that a rate and term refinance doesn’t make sense for most people.
As a rule of thumb, if you can’t lower your existing mortgage rate by say 1% or more, it doesn’t make sense given the closing costs, the time, and the hassle.
And resetting the clock on your mortgage in the process. So unless your current mortgage rate is say 8.5% or higher, it likely doesn’t make sense.
The one caveat is someone who is removing a co-borrower or spouse from their loan out of necessity. But even this is being avoided if at all possible due to the great rate disparity today.
The bulk of these types of refinances is coming from legacy vintages, aka older home loans.
Eventually when interest rates fall, those with today’s 7-8% mortgages will make up the bulk of rate and term refis.
[When to refinance a home mortgage]
The Cash Out Refinance Share Is Nearly 100%
On the other side of the coin, we’ve got a cash out refinance share that has hit record highs lately.
Per ICE, it grabbed a staggering 96% market share in the fourth quarter of 2022, the highest level on record, and hasn’t really changed much since then.
Ultimately, the only reason to refinance a mortgage right now is to tap equity, often because the homeowner needs cash.
This explains why virtually every refinance originated today includes cash back to the borrower.
Because most homeowners have very low mortgage rates, often locked in for the next 30 years, there has to be a compelling reason to give that up.
And that reason is a dire need for cash, even if it means losing their ultra-low mortgage rate in the process.
But while the cash out share is extremely high, the volume of cash out refinances remains low relative to prior years.
Despite tappable equity being close to its 2022 highs, less than $8B was withdrawn from the housing market via a cash-out refinance in August.
While it might sound like a large number, it’s about 70% below the highs seen last year, a consequence of those higher interest rates.
In other words, the overall volume of cash out refis is also way lower than it has been in past years, again because of the high mortgage rates available.
Instead, those who need money are likely opening a second mortgage, such as a HELOC or home equity loan.
Both options allow the homeowner to keep their first mortgage untouched, meaning they don’t lose the low fixed rate.
[How to Lower Your Mortgage Rate Without Refinancing]
Who Would Refinance Their Mortgage Today?
So let’s walk through some different scenarios to see who, if anyone, could benefit from a refinance right now.
Imagine a homeowner who purchased a $500,000 property in 2021 when 30-year fixed mortgage rates were 2.75%.
The property is now worth $600,000 and they want cash to pay for other expenses.
There’s basically no way they’re going to give up their 2.75% rate, so a second mortgage would be the only deal that made sense.
Now imagine a homeowner who purchased a property for $300,000 in 2004 that is now worth $650,000. They need cash and their remaining mortgage balance is only around $130,000.
They might consider refinancing and pulling out cash because their existing loan is small and their old rate may have been 6% anyway.
It might not be ideal, since they were only a decade from being free and clear, but at least they aren’t giving up a low rate on a big loan balance. And again, they need cash.
When it comes to a rate and term refinance, we’ll likely need mortgage rates to come down a bit more from current levels to appeal to recent home buyers.
If these buyers have been taking out mortgages with rates in the 7-8% range, it’s possible they’ll be able to save money by swapping the old loan for a new one at say 6%.
In the meantime, homeowners can pay extra each month to reduce the interest expense, assuming they have the means to do so.
As the mortgage crisis deepens, it’s clear that opportunities will present themselves, and some winners must emerge.
And so PennyMac, or Private National Mortgage Acceptance Co., has been launched to take advantage of the dislocation in the U.S. mortgage market.
The Calabasas, CA-based company, headed by Stanford L. Kurland, former Countrywide CFO and COO, plans to invest in and service mortgage assets on behalf of private investors.
PennyMac plans to acquire loans from banks and mortgage lenders looking to reduce their mortgage exposure, which the company believes will promote homeownership in the long term.
Interestingly, the new company’s management includes 10 former Countrywide employees, working just miles away from Countrywide’s headquarters.
Earlier this week, billionaire Wilbur Ross reached a definitive agreement to acquire H&R Block’s Option One servicing unit, containing roughly $53 billion in loans.
In October, Ross acquired the servicing rights of $42 billion in mortgages from American Home Mortgage, and assuming the Option One deal is finalized, WL Ross & Co. LLC would be the country’s second-largest subprime servicing portfolio after Countrywide.
A month later, NovaStar Financial agreed to sell its servicing rights to Morgan Stanley’s Saxon Mortgage for $175 million in cash.
And in December, Goldman Sachs agreed to buy C-Bass’s loan servicing unit Litton Loan Servicing.
Mortgage servicing, which involves the collection of monthly mortgage payments and subsequent late fees, has been one of the few profitable areas of the mortgage industry over the last year and change.
Update: Fremont General has agreed to sell their $1.9 billion servicing portfolio to Carrington Mortgage Services.