Mortgage rates surge to 6.85%, highest since July

Despite an interest rate cut earlier this month... mortgage rates continue to rise. The average rate for a 30-year mortgage just increased to 6-point-8-5 percent. That's the highest since July. Joining us now to talk about the real estate market and current mortgage rates is David Hochberg. He's the vice president of mortgage lending at Team Hochberg at Homeside Financial. Thanks for being here. It's not pretty. Why is that, even as the Fed has lowered rates since July? That's the biggest misunderstanding that our viewers have. The Fed controls the short-term rates, which has to do with the current economic environment, and it impacts things like credit cards. So if you have credit card debt, which a lot of our listeners do, those credit card debt payments have gone down because the rates have gone down. It impacts car loans, home equity line of credit. The 10-year bond controls what the mortgage rates are doing, and the bond traders are anticipating higher inflation and a stronger economy. So both sides are going in different directions. So when the Fed cuts rates, we always get the calls, hey, I want to refinance, and unfortunately this time it wasn't in line. So it didn't happen that way. Well, in layman's terms, I don't understand the connection between the bond and the mortgage rates. The bond traders are trading in anticipation of what the economy is going to be doing. So they anticipate higher inflation in the future. That's why they're building in higher interest rates right now. In September, the 30-year fixed loan dropped the full point. We were trading in the sixes, and all the mortgage professionals and all the realtors were ecstatic thinking that we're going to the fives. I was one of them. Wrong. Ever since the beginning of October when the Fed cut rates 50 basis points, we've given back everything that we gained in September. And we're back into the solidly in the sevens right now, heading towards the eights. So we're only as good as the information that we get every day at around 10 o'clock Central Time when the rates start trickling out. And the rates are in the sevens. So if you think the rates are in the sixes, you have to be careful because there are unreputable lenders out there that will charge you what's called discount points to quote you a rate in the sixes. You're going to pay thousands, if not tens of thousands of dollars in order to get that rate. So don't be hung up on the rate. It's not about the rate. It's about the monthly payment. So be very careful. You've got a high mortgage rate. Home prices are also still pretty high. So what are homebuyers and especially first-time homebuyers supposed to do to kind of tackle this huge amount of money they have to spend to get into a house? There are a lot of low down payment options. A majority of the homeowners in the United States National only put down 6 to 8 percent of a down payment. You don't need 20 percent. PMI is not this evil empire out there. It's your friend. You can get in if you're a veteran. Zero down. U.S. rural loans, if you're in a rural area, zero down plus the closing costs financed into it. Fannie Mae, Freddie Mac, 3 percent down. FHA loans, 3.5 percent down. So there are a lot of low down payment options. Here's the other thing. As the rates are going higher, you're going to start seeing sellers incentivize buyers with closing cost credits and something called buy downs. 1-0 buy downs. 2-1 buy downs. They just did it for a borrower driving over here. $600 cheaper with a 2-1 buy down. Seller financed 2-1 buy down. So their payment is $600 cheaper the first year, $300 cheaper the second year, and we're praying sometimes within that two-year period of time, rates drop and we can refinance them to something lower for a longer period of time. So there are a lot of incentives that are coming out, because as the rates go higher, properties are going to be lagging a little bit. The sellers want to get out just as much as the buyers want to get in. So look for closing cost incentives from sellers coming back into vogue. But are there going to be a lot of sellers? These sellers probably bought at a very low mortgage rate. Why wouldn't they hold onto that house until whenever? You've got the five D's. Divorce, downsizing, diapers, diamonds, and death. Diamonds? Yes, diamonds. That's one of the D's. A present. So you want a bigger home. You want bigger diamonds. And that's just look up five D's. I didn't make this up. So those five things are constantly happening. People are constantly losing their jobs, getting divorced, dying, having kids, and want bigger homes. So when those things happen, you're going to put houses on the market no matter what. I don't want to get ahead of everybody. The market stops until after the Super Bowl. That's a bunch of garbage because people are constantly selling homes. We got two calls driving down after I talked to the buyer about the buy-down. I had two other people wanting to get pre-qualified because they want to buy a home next year. Life changes happen regardless of the market. It's not stopping. Is there any hope in sight for the mortgage rate to come down? Or should we expect to be sitting at this rate for a while? Last year at this time, Fed Chair expected six cuts. We were supposed to have the first one in March. What did we get? We got three cuts and the first one came in October. Predicting what's going to happen, not a good thing in the mortgage industry. Whatever happens, happens. I'll be the first one to come on here and say, ladies, rates are dropping. Let's go. Right now, don't believe what anybody's saying. It changes every single day. It's exhausting. David Hochberg, thanks for having me. Eat your Tums. You're going to need it for a while, right? Thank you very much. You can catch David's show, Home Sweet Home Chicago, Saturday mornings from 10 to 1 on WGN Radio.