What’s Next for Borrowers?

Mortgage experts, from left: Andi Numan, Danny Marogy and Gabe Gabriel.

A sneak peak at mortgage rates for the new year

By Paul Natinsky

There is mixed news coming out of the real estate sector in the aftermath of COVID and the turbulence of the recent election cycle. Right now, there is good news for sellers of homes purchased before the pandemic. Super-low interest rates and government grants and programs that help buyers with down payments ushered in a real estate boom that caused housing inventories to evaporate and house prices to soar.

The real estate market moves in cycles, with housing prices affected by wide array of variables. A typical cycle features fluctuations of 3 to 5 percent, says Danny Marogy, Vice President of National Accounts at United Wholesale Mortgage. UWM’s clients are mortgage brokers, and Marogy manages major accounts from the Midwest to the West Coast.

Marogy says the boom induced during COVID by a combination of subsidized down payments and very low mortgage interest rates caused the supply of available houses to plummet, resulting in a dramatic 26 percent spike in average prices. And while the market has settled down, homeowners are likely to retain much of the COVID-induced value increase.

Inventory got really low during COVID. Everyone was moving and prices skyrocketed, said Andi Numan, President and founding Broker at Swift Home Loans in Birmingham. He said offers over asking price were the norm. “There was no such thing as putting in (an offer for the) asking price. You had to go higher, and everything was a bidding war.”

Numan started selling mortgages in 2012 and opened Swift Home Loans in 2021.

Interest rates have since normalized and are fluctuating between 6.5 and 7 percent, said Gabe Gabriel of Palladium Financial Group, a small real estate sales and brokerage firm. Inventory is bouncing back. A year ago, there was only enough inventory for two months; now the supply has increased to about four months.

According to the National Association of Realtors, “Months’ supply refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, six months of supply is associated with moderate price appreciation.”

Gabriel says people who bought homes within the past five to 10 years have a lot of equity, especially if much of their mortgage is paid. But a lot these homeowners are reluctant to sell because in order to realize their equity, they would have to finance a new home at, in some cases, twice the interest rate they are currently paying.

Gabriel’s real estate and mortgage brokerages are a second career. He was a chemical engineer working in manufacturing from 1978 until 2001 when he decided to work for himself as a mortgage broker. He quickly established himself as a Realtor and as a real estate broker.

Lower interest rates allowed people to buy houses that were previously out of reach, said Numan. With a 2 percent difference in interest rates, a $400,000 mortgage can be had for $500 less per month, he said.

Put another way, as the fed began loaning money at a zero percent interest rate and mortgage rates plummeted, people were able to buy a home for $100,000 more than they would otherwise be able to afford, said Numan. That causes property values to increase because everyone is willing to pay more. Inventory goes down because everyone can afford to pay more.

The government slowed it down to the extent that it could by making mortgage terms less favorable for those buying a second home. This left more opportunity for those looking to buy a first or primary home. On the back end of this, inventory is going up because affordability is going down. “People can’t afford the prices that the houses are at right now,” said Marogy.

However, he said that now is a great time to buy because, despite high house prices, those who are selling can be bargained with—buyers have leverage. He added that elevated interest rates are not a big problem, as buyers can refinance into a lower rate as soon as six months after purchase.

As the market normalizes, perhaps it will return to its fluid norm. Numan says the average homeowner refinances every three to five years and moves every five to seven years. As with other factors affecting the real estate and mortgage businesses, the election and its ramifications appear to be a mixed bag.

A week or two before the election there was a lot of hype, optimism and expectation, said Gabriel. “After the election, we see optimism,” he explained. “People think Trump being a businessman might change things. (As of) now, nothing has changed. However, there is a feeling of optimism. I can translate (it by) the number of calls we’ve had. People who were sitting on the sideline calling us back and asking what the rates are like.”

“Everyone wanted to wait for the election to see what was going on,” said Numan. “People were expecting rates to go back down after the election. There was some disbelief that they actually went up after the election.” He said it’s hard to measure effects in winter, real estate’s slow season. But rates aren’t the factor they once were as people adjust to the new reality.

“I think it’s going to be a conservative approach. I don’t think President Trump is going to do something drastic to where he is going to drive rates down, because if you drive rates down, you’re also going to raise inflation,” Marogy said.

Unless the country faces direct involvement in a war or faces another pandemic, the real estate market will remain stable, unlikely to fluctuate much this year, said Marogy.

But if the past few years are any indication, “stability” may be a relative term.