Mortgage Rates Top 7%; Homeowners Respond To Climate Change; What Luxury Property Buyers Want

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On The Mortgage Front

Freddie Mac (OTCMKTS:FMCC) reported the 30-year fixed-rate mortgage averaged 7.08% as of Oct. 27, up from last week when it averaged 6.94%. The 15-year fixed-rate mortgage averaged 6.36% up from last week when it averaged 6.23%.

And the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 5.96%, up from last week when it averaged 5.71%.

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“The 30-year fixed-rate mortgage broke seven percent for the first time since April 2002, leading to greater stagnation in the housing market,” said Freddie Mac Chief Economist Sam Khater. “As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month.

In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

While mortgage rates increased for the tenth consecutive week, mortgage applications fell again to another 25-year low. The Mortgage Bankers Association’s (MBA) Market Composite Index was down by 1.7% on a seasonally adjusted basis from one week earlier; the unadjusted index was down by 2%.

The Purchase Index took a 2% drop and the Refinance Index squeaked out a 0.1% uptick, although it was also 86% lower than the same week one year ago.

“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” said MBA Vice President and Deputy Chief Economist Joel Kan.

“Refinance applications were essentially unchanged, but purchase applications declined 2% to the slowest pace since 2015 – over 40% behind last year’s pace. Despite higher rates and lower overall application activity, there was a slight increase in FHA purchase applications, as FHA rates remained lower than conventional loan rates.”

On The Homeownership Front

More than half (58%) of U.S. homeowners have invested in making their homes more resilient to climate threats, according to a new report from Redfin (NASADQ:RDFN).

In a survey of 1,000 homeowners nationwide, roughly one-quarter (26%) said they’ve spent money to make their home more resilient against extreme heat. The other risks that spurred homeowners include extreme cold (22%), flooding (16%), hurricanes and major tropical storms (14%), poor air quality (13%), tornadoes (12%), earthquakes (11%) and wildfires (11%).

In Florida, nearly three-quarters (71%) of homeowners have spent money to protect their residences from climate risk, with 40% of homeowners focusing on increased resiliency against hurricanes or other tropical storms.

“Americans are shelling out cash to fortify their homes against natural disasters as they increasingly move to at-risk areas despite intensifying climate change. Unfortunately, their investments aren’t always enough – a reality that came into focus when Hurricane Ian destroyed scores of homes, many of which lacked flood insurance,” said Redfin Chief Economist Daryl Fairweather.

“Homeowners should be aware that their property value could drop over time if their area becomes uninsurable and/or uninhabitable due to climate change.”

However, some homeowners face risks rooted in crass bias. A new report published by the National Community Reinvestment Coalition (NCRC) outlining prejudice by real estate appraisers against Black homeowners.

The report used a “mystery shopper” approach, with NCRC recruiting multiple interracial couples who own homes in the Baltimore metropolitan area as the test subjects. Two appraisers were hired to appraise the interracial couples’ residences.

“When one appraiser arrived at the home to conduct an inspection, only the Black homeowner was present,” the NCRC report said. “When the other appraiser arrived at the home to conduct an inspection, only the White homeowner was present.

The home’s decor was also modified to represent the race of the homeowner meeting the appraiser. When the White homeowner met with the appraiser, all traces that a Black person lived in the home were removed. The opposite was done when the Black homeowner met with an appraiser.”

The result of the test, according to NCRC, was the White testers received valuations that were almost $7,000 higher, on average.

“The most glaring examples were a home that was valued 12.9% higher when the White spouse presented the home (a difference of $40,000), and a home that was valued 9.1% higher when the White spouse presented the home (a difference of $46,000),” the report noted.

“The discrimination we found in the appraisals system undermines Black wealth-building and almost certainly violates the law,” said NCRC President and CEO Jesse Van Tol.

“The evidence of systemic bias in the appraisal business has been mounting for some time, but NCRC’s new testing showed that interracial couples in Baltimore get far better treatment and valuations if the appraiser believes the homeowner and their family are White.”

On The Homebuying Front

Sales of new single‐family houses in September were at a seasonally adjusted annual rate of 603,000, according to estimates from the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.9% below the revised August rate of 677,000 and is 17.6% below the September 2021 estimate of 732,000.

The median sales price of new houses sold in September was $470,600 while the average sales price was $517,700. The seasonally‐adjusted estimate of new houses for sale at the end of September was 462,000, which represents a supply of 9.2 months at the current sales rate.

Separately, a new report found 80% of U.S.-based high-net-worth consumers viewed real estate as a safe investment and more than one-third believed it was a safer investment than stocks, bonds, cryptocurrency and pensions.

According to “The Trend Report” released by Coldwell Banker Real Estate LLC, an Anywhere (NYSE:HOUS) brand, and the Coldwell Banker Global Luxury program, the top reasons that high-net-worth individuals purchased real estate as an investment were portfolio diversification, (46.7%), long-term investment (46.1%), financial gain from rental income (45.9%) and inheritance for their children (45.3%).

The top five types of homes respondents own as an investment property were multifamily homes (39%), single-family homes (34%), apartments and condominiums (34%), townhomes and duplexes (33%) and fractional ownership (28%).

As for the purchasing, the report found over half of luxury consumers plan to finance their next home purchase via cash offers (51%) or with a private wealth mortgage (48.1%).