Mortgage Newsletter - Winter 2023

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Inside this edition:
- Economy & Mortgages: Have Rates Peaked? What's Ahead for Home Buyers?
- Will Higher Rates Lead to Falling Home Prices? The Historical View.
- Adding Value with Accessory Dwelling Units (ADU)
- Why Now Could Actually End Up Looking Like a Good Time to Buy
- What's Great Credit Worth? We do the math!

Economy & Mortgages: Have Rates Peaked? What's Ahead for Home Buyers?

Will Higher Rates Lead to Falling Home Prices? The Historical View.

Is buying a home when rates are high a bad idea? Assuming you have to stretch that mortgage payment to get into a home, one thing you’d naturally be concerned with is the likelihood that home prices would fall right after you buy.

While this is of course a possibility, it’s statistically unlikely. As it turns out, home prices don’t correlate well with mortgage rates. In fact, home prices tend to ignore mortgage rates most of the time.

First, just because rates are high doesn’t mean home prices will tank. Look at the 1970’s (8.89% median interest rate), 1980’s (12.82% median interest rate), and 1990’s (7.88% median interest rate). According to Freddie Mac, year-over-year home prices only declined in the 1982-83 and 2007-09 periods.

When you look at it on a monthly basis, the picture becomes even more clear. It’s actually rare for mortgage rates to rise and home prices to decline at the same time – only happening in 6 out of 365 months. This is because rates tend to rise when Fed policy drives up rates in general, in response to inflation (which usually coincides with strong economic growth, low unemployment and rising wages -- which drives up home prices).

The average homeowner keeps their home for around 13-14 years, a number that has steadily increased every year until recently, according to Redfin. When you consider that housing prices have fallen nationally in only 55 months in over 30 years, it’s likely that the average homeowner is coming out ahead, no matter when they buy.

Certainly, savvy homebuyers know they must reset their expectations about financing costs over the next several months. But the prospect of continued home value appreciation due to limited supply, as well as the prospect of a refinance later on, can make a purchase strategy attractive -- even with higher rates. How much of that potential appreciation are you willing to forego while waiting for rates to fall considerably? Let’s chat!

Adding Value with Accessory Dwelling Units (ADU)

We've written recently about the growing trend for adding Accessory Dwelling Units (ADUs) to the properties of single-family residences. We can report that government encouragement of ADUs keeps expanding to match the trend. In October, the U.S. Department of Housing and Urban Development (HUD) announced a new policy allowing homeowners “to use a portion of the actual or prospective rental income from an [ADU] to be added to the borrower’s effective income for purposes of qualifying for an FHA-insured mortgage.”

The trend towards ADU construction for rental income, multi-generational families, work-from-home businesses, and other reasons means opportunity for many homeowners. If you have the space on your property to consider such a project, and have an interest in what it would take, set up a time with me to go through the ramifications in detail, so you can make a fully informed decision about it.

Why Now Could Actually End Up Looking Like a Good Time to Buy

With interest rates on some 30-year fixed rate mortgages hitting 8% this Fall, so many clients I speak with who are considering a home purchase (first time, as well as move-up) are naturally in shock when they consider the higher monthly payments that come with the territory today.

Many prospective buyers are ready to throw in the towel, and retire to the sidelines until the storm passes and the coast is clear. But before doing so, it’s important to try to see the big picture.

There are three big drivers in the market today which will probably continue to define the next few years in this industry.
Inventory: Housing supply is and will continue to be the driving force behind prices. Tight supply has sustained home prices even with a doubling of interest rates. Housing upply will not catch up to demand for home for the foreseeable future. When demand exceeds supply, prices tend to rise.

Demographics: The Millennial generation is 80 million strong, and now reaching the prime homebuying years. They’ve put off family formation longer than the previous generation, and are putting the most pressure on housing. That means first-time buyers will dominate the market. With limited inventory, this generational wave will continue to put upward pressure on prices.

Mortgage rates: As mentioned on page 1, they’re expected to fall back into the 6% range in the months ahead. It’s likely that sidelined buyers will re-enter the market as this occurs, which will put upward pressure on prices as more buyers bid on existing inventory. Right now, high rates have sidelined many prospective buyers to wait, which means less competition – especially in the case of unloved properties!

What it means...
While it’s impossible to predict the future perfectly, the trends above are powerful tidal forces acting on our industry. For these reasons, buyers entering the market now -- as tough as it seems today – may end up looking like winners.

With a floor under prices, and less competition, there is more room for negotiation (especially on a home that needs an upgrade). Later on, if rates fall as expected, a possible refinance opportunity would exist, which would free up cash flow each month. To top it off, the many fence-sitters waiting for rates to fall would likely re-enter the market the minute the storm has passed and bid up prices with a new round of bidding wars against limited inventory. As one mortgage pro said, “You’ll have pandemonium.”

So, even with high interest rates, buying now could end up looking like the better move, down the road. Rather than dither, call me, and let’s talk through your goals. We’ll find the loan options that will fit into your budget and get you house hunting while the hunting is good!

What's Great Credit Worth? (Answer: A lot.) We do the math!

Now more than ever, with rates at elevated levels, a great credit score is worth the effort. We always say that we like to “do the math”. Well, here it is. While your financial profile and loan program will determine your rate, the general rule is that a better credit score helps you win a lower mortgage rate. The table below is based on a $300,000 mortgage, using national average mortgage rates from last month (*source: myFICO, October 2023). You can't help but see a significant difference in monthly payment and lifetime interest costs!

FICO Score*	National Average Mortgage APR*	Payment (Principal & Interest) on 30-Year Fixed	Mortgage Interest Over 30 Years
760-850	7.479%	$2,093	$453,599
700-759	7.701%	$2,139	$470,071
680-699	7.878%	$2,176	$483,300
660-679	8.092%	$2,221	$499,403
640-659	8.522%	$2,311	$532,111
620-639	9.068%	$2,429	$574,282

Rates as of 11/10/23 and can change without notice. Rates mentioned in articles are for illustrative purposes only.  All mortgage products, rates, terms and conditions are subject to credit and underwriting approval. Your actual payment obligation will be greater. Does not include additional costs such as taxes and insurance premiums. This is not a commitment to lend or extend credit. Additional requirements and restrictions apply. Company NMLS 1662480. Consult with your tax, legal and accounting advisors before engaging in any transaction.


Like brushing and flossing, taking care of your credit score pays off in the long run! There are many ways to check your credit score for free, and you can get one free credit report from each of the major reporting companies (Experian, TransUnion, and Equifax) annually. Want more information on how to boost your score? Contact us, and we’ll provide guidance anytime!


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