The rise in house prices increases the demand for large mortgages

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Home loan demand surged last month to levels approaching the all-time highs set in March, but rising home prices mean home buyers are more likely to need giant loans which traditionally had higher interest rates.

Last Shipping Market Monitor report mortgage and real estate data aggregator Black Knight shows that interest rates on loans for purchases rose 6 percent last month, breaking two straight months of declines. Refinancing from cash also rose 10 percent, while refinancing rates and maturities fell 4 percent.

Inappropriate, “giant” mortgages accounted for 12.4 percent of all purchase and refinancing rate lockdowns, up from 5.25 percent a year ago. Compliance with mortgages eligible for purchase or guaranteed by mortgage giants Fannie Mae and Freddie Mac accounted for 65 percent of all locked mortgage rates in June, up from 72.3 percent a year earlier. FHA loans captured 12 percent of the market, up from 10.2 percent a year ago.

Estimate the volume of blocking for loan products. A source: Black Knight Originations Market Review

Record increases in house prices are changing the behavior of borrowers and the structure of the mortgage market, said Scott Happ, President of Black Knight Secondary Marketing Technologies, in his speech. statement

The rise in house prices has been accompanied by “a continued gigantic increase in the share of lending in the market and a decrease in the corresponding share,” said Happ. “With unchanged rates and strong purchase lending, an additional rise in home prices could further exacerbate this trend.”

Last Black Knight Home Price Index showed that prices for single-family homes rose by a record 18.3 percent in May over the same period last year, while apartment prices rose 13.1 percent during that time. This means that even though interest rates remain low, home buyers will need to spend 21.3 percent of average household income on monthly mortgage payments, up from 18.1 percent at the start of the year.

In markets like Los Angeles, monthly mortgage payments can be up to 46.5% of median household income, “an alarming number for buyers hoping to make the jump into home ownership,” Black Knight analysts say.

Secondary home prices have fallen, according to the National Association of Realtors. record high of $ 350,300 in May, an increase of 23.6% per year. The corresponding loan limit is adjusted annually based on the house price index maintained by regulator Fannie and Freddie, the Federal Housing Finance Agency.

In most of the United States corresponding loan limit for 2021 – $ 548,250. Larger “giant” loans are not subject to purchase or guarantee from Fannie and Freddie, although mortgage giants can purchase loans worth up to USD 822,375 in high-end housing markets.

The Federal Housing Authority will insure mortgages up to 65 percent of the corresponding credit limit, or $ 356,362 in most markets. IN high-priced areasThe FHA will meet Fannie and Freddie’s $ 822,375 upper limit. But FHA-insured loans usually have higher interest rates and upfront and annual premiums.

Giant mortgage rates are dropping below the corresponding FHA loans. A source: Black Knight Originations Market Review

In the early days of the pandemic, lenders love Wells Fargo slashed giant mortgage lending or charged higher rates to offset the greater risk of lending uncovered by Fannie, Freddie, or FHA.

A year ago, large loans were charged a higher interest rate (3.32 percent) than the corresponding loans (3.12 percent) or FHA loans (3.16 percent). But at 3.10 percent, 30-year large mortgages are now more affordable than matching loans (3.16 percent) or FHA loans (3.23 percent), according to Black Knight.

“The rapidly improving economy and labor market has freed up huge loans as banks have deposits to use,” predicts the Mortgage Bankers Association, Joel Kahn. noted in June.

But large loan rates could rise rapidly in the coming months if lenders and secondary investors buying mortgage-backed securities not guaranteed by Fannie, Freddie or Ginnie Mae lose confidence in the economic recovery or if default rates rise.

Email Matt Carter



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