War, rates, inflation: More headwinds ahead for homebuyers
On Feb. 26, right before the Iran war, the average Freddie Mac 30-year mortgage rate dropped to 5.98%.
This week, the rate averaged 6.37%. For an $800,000 mortgage, the payment jumped 4.2% or $202 (from $4,786 to $4,988).
The price of a gallon of gasoline in California rose roughly $1.50, up to more than $6 as the Strait of Hormuz, a key channel for oil shipments, was blocked by Iran.
Predictably, everyone from the U.S. Post Office to Amazon is adding fuel surcharges.
In addition to the war inflation pile, we’ve already spent more on tariffs, higher utility bills, insurance prices and grocery costs.
There is a lot more noise about a 4% inflation rate for 2026 — double the Fed’s targeted inflation rate. If that comes to pass, the Federal Reserve will most certainly raise, not lower, short-term interest rates.
Worse than inflation is stagflation.
On Monday’s NPR program “Planet Money,” Chicago Federal Reserve Bank President Austan Goolsbee said the U.S. is suffering from stagflationary shock.
Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.
So, what is a potential homebuyer to do?
“People are coming to the realization that (mortgage) rates aren’t coming down. Home prices aren’t falling. We are in an inflation spiral,” said Ted Tozer, the former Ginnie Mae president during President Barack Obama’s administration. “People should not try to time the market. You can always refinance later.”
With that said, Tozer believes “there’s a good possibility this (inflationary spiral) puts us in a recession.”
My clients Mark (I’ll skip his name for privacy’s sake) and his wife moved back to Orange County from Texas. They have been saving up money to buy a home locally.
“This is a different market from Texas,” he told me. “There is limited inventory, a (high) level of competition and many people offering over than asking price. The macro stuff is out of our control. We just decided to move forward.”
Putting $500,000 down, he and his wife bought a $1.5 million-dollar home in Orange County using an adjustable-rate mortgage locked in for the first five years at 5.5%.
“I think rates will go a little bit lower, giving us the option to refinance before five years,” he said.
Certainly, an ARM can provide at least a 5% lower payment, although you always carry the risk rates can go up later before you have an opportunity to refinance.
Mark Zandi, chief economist at Moody’s Analytics, is less optimistic about housing with mortgage rates now at 6.5%.
“Credit quality has weakened from a year ago,” he said, citing tariffs, war, higher electricity costs due to AI data centers, and lost workers (from ICE raids) leading to higher prices.
Indeed, credit quality has weakened.
According to a March Fitch Rating Agency Performance Monitor, the exotic mortgage category of so-called non-qualified mortgages (bank statement loans qualifying as income and the like) has an astounding delinquency rate of 7.26%, 118 basis points higher year-over-year.
Zandi, like Tozer, believes there is a real possibility of a recession.
So, let’s go down that (potential) recession rabbit hole.
If you haven’t bought yet but are thinking about it, what’s your job stability like? If your job is secure and you are not going beyond a conservative housing budget (house payments and property upkeep), then shop away.
A conservative housing budget is key because everything is costing more.
If you are worried about your job, then wait until you are more comfortable before you buy a home.
If you already own and you think you have the staying power, don’t do anything. Even if home prices go down, they will come around again.
Think of the 2008 Great Recession and mortgage meltdown. By about 2012, Southern California home prices were stabilizing.
For most, family and generational wealth starts with homeownership, but it’s not possible or practical for everyone.
A Harris Poll in conjunction with USA Today just released poll findings that found out of more than 2,000 respondents, many believe the dream of homeownership is slipping farther away. Across generations, respondents said homeownership was too hard to break into and that once achieved, it was too challenging, expensive, or both, to maintain.
Half of all Gen Z homeowners (ages 14 to 29) say they would “love to go back to renting,” more than double the share of all respondents.
One-third of Gen-Zers “regret buying the house I currently live in,” versus 20% of all generations.
As an aside, in my experience over say the last five years, roughly 85% of Southern California first-time buyer clients are getting help from their folks, grandparents or trust funds. It’s either down payment funds or co-signing to qualify, or both. My first-time buyer cluster are folks in their 20s and 30s.
It is very rare for me to come across any first-time buyers under age 30 who have been able to come up with the down payment and qualify on their own.
Don’t get ahead of your skies if you are in the market to buy a home. Stay within your means — even if that means leaving costly California.
Freddie Mac rate news
The 30-year fixed rate averaged 6.37%, 9 basis points lower than last week. The 15-year fixed rate averaged 5.74%, 3 basis points lower than last week.
The Mortgage Bankers Association reported a .8% mortgage application decrease compared with one week ago.
Bottom line: Assuming a borrower gets an average 30-year fixed rate on a conforming $832,750 loan, last year’s payment was $130 more than this week’s payment of $5,193.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.49 %, a 15-year conventional at 5.25%, a 30-year conventional at 5.875%, a 15-year conventional high balance at 5.625% ($832,751 to $1,249,125 in LA and OC and $832,751 to $1,104,000 in San Diego), a 30-year high balance conventional at 6.125% and a jumbo 30-year-fixed at 6.25%.
Eye-catcher loan program of the week: A 30-year mortgage, interest-only payments, fixed for the first five years at 5.875% and 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.