The current administration recently announced a plan to inject $200 million into the market by instructing Fannie Mae and Freddie Mac to use their cash reserves to purchase Mortgage-Backed Securities (MBS). Very simply, an MBS is a bundle of securitized home loans. Think: You want to invest in the housing market, so you lend money to someone buying their primary residence. When groups of investments like this are pulled together, it results in a mortgage-backed security. When there is more demand for MBS, rates should go down accordingly.
With America longing for lower mortgage rates and our local housing market longing for more affordable supply, what could this mean for us here in the 805? Will lower rates unlock inventory, or only increase demand?
A rule of thumb is that every one percent in rate means that someone can qualify for 10 percent in variance. If you qualify for a $1M house, and rates drop by one percent, you should qualify for a $1.1M house now. Instead of helping folks get to the next level, could it instead push prices up as inventory remains tight?
If the infusion is into Fannie and Freddie, that then means conforming loans are most impacted, though the market will overall get a push. With the secondary market becoming more robust, that means someone could put down way less than 20 percent using a conforming first and a $500,000 second mortgage.
Here are a few examples for maximum sales prices that I’ve seen:
County Loan Limit 10% w/500K 2nd 5% w/500K 2nd
SBA: $941,850 $1,602,055 $2,212,690
VTA: $1,035,000 $1,705,555 $2,321,637
SLO: $1,000,500 $1,667,222 $2,281,286
Conforming loan limits being what they are, less expensive debt could start to lure Baby Boomers out of their family homes and into downsized luxury. Hopefully, that will help an infusion into a tight market. We love it here because space is limited, though the limited space makes concentrated demand all the more impactful.
It will be curious to see how much difference the state and local tax (SALT) adjustments will be to payroll as the updated tax law takes effect. Since the maximum loan balance for deductible interest remains at $750,000, increasing SALT is one-way new tax law has impact on your next filing.
Of course, our story is what we will make of it, and there are way too many variables on the world stage to have accuracy in any prediction. The market will continue to adjust, react, and adjust again. In the meantime, let’s continue to watch the 10-Year Treasury for relative rate data and continue to strategize as policy unfolds around us.
Austin Lampson is a licensed mortgage professional and branch manager of Origin Point Mortgage. She has spent the last quarter-century helping her clients balance math and emotion to achieve their financial goals. Reach Austin at (805) 869-7100, austin@austinlampson.com, or visit austinlampson.com.
