In California, a homebuyer can snare 30-year mortgage at 5.99%

Larger loan sizes tend to price better as there are more real dollars of income for the lender in each mortgage.

While the Freddie Mac average 30-year fixed rate landed at 6.77% this week, its lowest level since mid-March, well-qualified buyers in California can get a much cheaper rate of 5.99% at 1.5 points.

That’s for loan amounts up to $766,550, also known as “conforming loans.”

The 30-year fixed-rate mortgage fell to its lowest level since mid-March, dropping 12 basis points from last week, according to Freddie Mac.

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“Mortgage rates are headed in the right direction and the economy remains resilient, two positive incremental signs for the housing market,” said Sam Khater, Freddie Mac’s chief economist. “However, homebuyers have yet to respond to lower rates, as purchase application demand is still roughly 5% below spring, when rates were approximately the same.”

Khater said this is not uncommon, as sometimes when rates decline, demand weakens. The apparent paradox, he said, is driven by buyers making sure rates don’t fall even more before they decide to purchase.

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Why are California rates lower than the Freddie Mac rate survey?

California loan sizes tend to be larger than in other parts of the nation. Therefore, they tend to price better as there are more real dollars of income for the lender in each mortgage.

For example, if a lender earns 1% on a $600,000 mortgage, that’s $6,000. If a lender earns 1% on a $250,000 mortgage, that’s $2,500. Loan size improves the real dollars captured.

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A well-qualified California borrower can get a 15-year conforming fixed rate at 5.375% with 1.5 points. The Freddie Mac survey for this week shows a rate of 6.05%.

Two loan programs not tracked by Freddie Mac are the high-balance, fixed-rate (for more than $766,550) and the jumbo fixed rate (more than $1,148,825), which applies to Los Angeles County and Orange County. The high-balance 30-year fixed is at 6.25% with 1.5 points for well-qualified borrowers. The jumbo 30-year jumbo fixed is at 6.625% with 1.5 points.

Homebuyers should talk to their broker about locking into these lower rates.

Inflation, meanwhile, seems to be coming down.

Fed Chairman Jerome Powell will likely not lower short-term rates at the July 30-31 meeting. A rate reduction is more likely at the central bank’s September meeting. Why? It’s a balancing act for the Fed, which doesn’t want to act too quickly and reignite inflation but also not wait too long, which risks a faster hiring slowdown with higher rates.

Seth Sprague, director of mortgage consulting at Richey May, observed how mortgage rates have stayed higher for longer. “We’ve been in this higher rate 6-7% range for over two years now,” he said. “Get ready for a re-fi bubble between now and the next 24 months.”

He sees more homes coming on the market. “If you are thinking about moving, stay tuned to rate activity,” he said.

On the purchase side of the equation, Ted Tozer, former Ginnie Mae president under President Obama, points to the influence of the housing supply then versus now.

According to data he received from Moody’s Analytics, there was a glut of 3 million homes for sale in 2008 during the Great Recession.

After the housing meltdown, regulators clamped down on vendors who provided builders’ construction loans. So, home building substantially slowed down. “Regulators are still licking their wounds,” said Tozer.

“Today we are 3.5 million homes short. 1.1 million homes are currently being built per year,” he said. “We will reach equilibrium in 2034.”

With the supply side problem, Tozer thinks it’s a good time to buy. “People buy payment. You can refinance. Prices go up when rates go down,” said Tozer. In other words, there is more opportunity now.

“It’s always difficult to predict rates, but I think it’s safe to predict that when rates do drop it will stimulate a significant amount of buyer demand that has been waiting on the sideline,” said Brad Seibel, president, Sage Home Loans Corp. “That demand will drive up prices and make a difficult environment for many buyers, particularly first-time homebuyers. If people have the ability to move forward now, they can miss the rush and still take advantage of lower rates through a refinance.”

Good news for mortgage shoppers indeed.

Freddie Mac rate news

The 30-year fixed rate averaged 6.77%, 12 basis points lower than last week. The 15-year fixed rate averaged 6.05%, also 12 basis points lower than last week.

The Mortgage Bankers Association reported a 3.9% mortgage application increase compared to one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $5 more than this week’s payment of $4,982.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point: A 30-year FHA at 5.625%, a 15-year conventional at 5.5%, a 30-year conventional at 6.125%, a 15-year conventional high balance at 5.99% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year-high balance conventional at 6.375% and a jumbo 30-year fixed at 6.75%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.

Eye-catcher loan program of the week: A 30-year fully amortized jumbo, fixed for the first five years at 5.99% with 30% down at 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.