Housing Beat: Mortgage Rates Hit 5% Level While Property Taxes Inch Higher

The week in housing was one of great challenges, with mortgage rates cracking the 5% level while homeowners faced an uptick in property taxes and state attorneys general demanded that mortgage servicers drop their convenience fees charged to borrowers.

High-Five: Freddie Mac FMCC reported the 30-year fixed-rate mortgage averaged 5% on April 14, up from last week when it averaged 4.72%; one year ago, it averaged 3.04%.

The 15-year fixed-rate mortgage averaged 4.17%, up from last week when it averaged 3.91%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.69%.

“This week, mortgage rates averaged five percent for the first time in over a decade,” said Sam Khater, Freddie Mac’s chief economist. “As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation.”

Mortgage applications were down by 1.3% in the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association (MBA). While the MBA’s Purchase Index was up 1% for the week ending April 8, with the organization’s Refinance Index down 5% from the previous week and 62% lower than the same week one year ago.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, said refinance activity declined to the slowest weekly pace since 2019, and he added the rapid rise in mortgage rates has brought a change to the organization’s industry forecast.

“Given the faster than expected increase in mortgage rates, and the likelihood of more aggressive actions from the Federal Reserve to curb inflation, MBA’s April 2022 forecast now calls for mortgage originations to total $2.58 trillion in 2022 — a 35.5% decline from 2021,” Kan said. “Purchase originations are still forecasted to reach a record $1.72 trillion this year — a 4% increase from 2021. Refinance originations are now expected to fall 64% to $841 billion.”

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The Taxman Cometh: Mortgage rates aren’t the only financial costs impacting homeowners. New data published by ATTOM found $328 billion in property taxes were levied on single-family homes in 2021, a 1.6% from $323 billion in 2020. However, this was the second smallest rise over the past five years.

At a more granular level, the average tax on single-family homes rose 1.8% year-over-year from $3,719 in 2020 to $3,785 last year, the smallest uptick in five years.

"It's hardly a surprise that property taxes increased in 2021, a year when home prices across the country rose by 16%," said Rick Sharga, executive vice president of market intelligence at ATTOM. "In fact, the real surprise is that the tax increases weren't higher, which suggests that tax assessments are lagging behind rising property values, and will likely continue to go up in 2022."

Among the nation’s major metro areas, the largest increases in average property taxes during 2021 occurred in Nashville (up 27%), Milwaukee (up 18.6%), Baltimore (up 12.3%), Grand Rapids, Michigan (up 12.3%) and Louisville (up 11%). States with the highest effective property tax rates in 2021 were Illinois (1.86%), New Jersey (1.73%), Connecticut (1.67%), Vermont (1.55%) and Pennsylvania (1.37%).

In Search Of An Affordable Home: For many buyers, the lack of affordable homeownership opportunities is forcing many buyers to seek property in different markets. New data study published by the brokerage Redfin RDFN found that a record level of 32.3% of the company’s customers were looking to move into a different metro area during the first quarter of this year, up from 31.5% one year earlier and 26% in pre-pandemic 2019.

Miami was the most popular migration destination in the first quarter, with Phoenix, Tampa, Sacramento and Las Vegas rounding out the top five most popular destinations attracting new residents. On the flip side, San Francisco saw the greatest level of outward migration in the first quarter, followed by Los Angeles, New York, Washington, D.C. and Seattle.

“Skyrocketing home prices and rising mortgage rates have made relocating to a more affordable area the only viable option for some prospective homebuyers,” said Dana Anderson, data journalist at Redfin and author of the new study.

Affordable homeownership has become an elusive commodity within California, where only about one-fourth of all residents can afford to a $786,750 statewide median-priced home in 2021, according to new data from the California Association of Realtors (CAR), which blamed double-digit home price growth that occurred during the COVID-19 pandemic.

CAR reported that 26% of all Californians earned the minimum income needed to purchase a home in 2021, compared to 28% in 2020; 17% of Black and Latino households could afford the median-priced home in 2021, down from 19% and 20% in 2020, respectively, while 40% of Asian homebuyers who could afford the median-priced home in 2021, down from 43% in 2020.

An Inconvenient Fee: A coalition of 22 state attorneys general has called on the Consumer Financial Protection Bureau (CFPB) to stop mortgage servicers from charging convenience fees, which they defined as an exploitative “pay to pay” cost.

In their letter to the CFPB, the attorneys general said the convenience fees were abusive, noting homeowners have no choice in choosing their mortgage servicers. They cited an example of PHH Mortgage, which charges individuals $7.50 to make payments online and $17.50 to speak with a live operator for a telephone transaction.

“That consumers should face additional charges depending on how they pay their bills, for instance by paying online, is absurd,” said Illinois Attorney General Kwame Raoul, who is leading the coalition. “Convenience fees allow mortgage servicers to be paid twice for simply performing their most basic function of accepting payments. Convenience fees are unfair and result in people paying more in the long run. I am urging the CFPB to prohibit mortgage servicers from being able to charge convenience fees that exploit residents when they are trying to pay their bills.”

Photo: Tim Vrtiska / Flickr Creative Commons