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Mortgage rates have shot higher in the past few weeks, approaching 7%, causing mortgage demand to drop to its lowest level in three months. Mortgage applications are reportedly down 31% from last year, nationally.
No one knows this better than well-known local mortgage broker Wes Rice, who has been navigating the rough seas that are interest rates these days. And if you think rate fluctuations are nerve-wracking as a homebuyer, they are a white-knuckled ride for people like Rice who make their living making loans.
Last September Rice was working for Finance of America Mortgage, the 15th largest mortgage lender in the U.S., a company he’d been with for seven years. The next month he was told the company was closing down. He had 10 days notice.
Rice managed to land another job at Fairway Independent Mortgage, the 3rd largest firm in America. That was last October. On Feb. 27, 2023 he learned his new employer was shuttering offices in four states, including California.
Rice was out of a job once again.
He was luckily able to land a position at Watermark Home Loans, a small mortgage banker headquartered in Irvine, California. He says the company is small enough that he can pick up the phone and talk to the owner. He says the smaller size makes for a much more efficient loan process. There isn’t as much red tape as with the bigger outfits, he says.
Mortgage lending is still a jittery business at the mercy of rising and falling interest rates.
Rice says while higher interest rates have affected buyers across the country, California has been particularly hard hit, suffering from “affordability shock,” which means people who can afford a home in another state can’t qualify in California.
The problem stems not only from high rates, but also from a chronic lack of inventory. New home construction has not kept up with demand, despite pressure from politicians in Sacramento on cities to clear away obstacles that slow housing growth.
“The California market is pretty bad,” says Rice, who has been in the mortgage business for almost 40 years. He says last July, when rates hit 7-1/4%, everything stopped. The bottom fell out of the mortgage business, especially here in California. Rice says higher rates have also affected the refinance market, which he says “evaporated.”
The Lodi market, of course, has been equally affected by higher rates, he says. Last July home prices had dropped, on average, about 10 percent. However, as rates began to retreat from their highs late last year, real estate prices started to recover. Rice says Lodi property values have risen one or two percent since Jan. 1, 2023.
He also says there are signs of bidding wars starting to reappear. “It’s simple supply and demand,” says Rice. Lodi may be unique in that so few homes are for sale. Local Realtors report there are 50% fewer homes for sale now compared to last year at this time. Today there are only about 35 homes for sale within the Lodi city limits. Last year there were 70-plus properties listed for sale.
There are several possible reasons for the low inventory, say local Realtors. Many people with mortgages in the 2% or 3% range don’t want to give up their loans. Others would like to “move up” to a bigger, better home or neighborhood, but there aren’t enough opportunities in the market today. Still others are spooked by the economy and political climate nowadays and are reluctant to move.
Rates have recently begun their upward trend again, and needless to say, business is not great, says Rice. “The market is leveling out,” to put it nicely. However, with the economy slowing down and signs of inflation easing, he says interest rates should also come down. And when rates drop there more buyers who can qualify for loans, and the mortgage market comes alive again.
Where will rates be by the end of this year? Rice predicts they could be in the 5% range again. But until then, the market remains challenging.
Rice says things are also rough for the banking industry. “The bank situation is a wild card,” he says. The failure of some large community banks sent shockwaves through the lending industry earlier this year. Many community banks who might normally be making loans have pulled in their horns, making credit that much harder to get.
Rice says he is particularly concerned about the health of community banks across America. When interest rates started their climb, he says the assets of many banks began to lose value. And when customers would withdraw their cash, the banks had to liquidate assets to meet the demand, sometimes selling at a loss.
Many more community banks are on the edge of collapse, says Rice, because the value of their assets have declined to the point where their reserves are insufficient.
Rice says he’s entered the reverse mortgage market, helping seniors extract some of the equity in their homes. He says there is a need for this type of product and seniors have been receptive to it.
As he reflects over the 39 years he’s been in the mortgage business, Rice says he’s seen many ups and downs in the market. He lived through the 2008 financial meltdown and the COVID shutdown, both of which brought business to its knees.
Rice has also been thinking about retirement. “I’d hoped to be able to retire in about five years. But now, I don’t know.”
“This market is different,” says Rice. “It’s scarier.”
Steve is a former newspaper publisher and lifelong Lodian whose column appears most Tuesdays and Fridays in the News-Sentinel and at stevemann.substack.com. Write to Steve at aboutlodi@gmail.com.
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