Patrick Loyd's OC Housing Report

Patrick Loyd's OC Housing Report

  • Patrick Loyd
  • 10/6/22

Sky-High Rates

From the lows of 3.22% in January to a high of 6.7% last week, 
rising mortgage rates have substantially impacted the housing 
market in so many ways. 

Mortgage rates have more than doubled after ringing in 2022.

Back in 1989, gas prices averaged 99¢. It reached $1.59 in 2000, jumped to $3.11 in 2010, and was nearly unchanged at $3.04 a decade later in 2020. However, in 2021, the price for a gallon of gas jumped from $3.26 in January to $4.60 by year’s end, a 41% increase. It was the largest rise since 2009. In 2022, gas prices soared even higher and sat at $6.40 to start October, up another 43%. Prices had nearly doubled since January 2021. From driving less, to carpooling, to combining errands, to eating out less, at these levels, consumers have adjusted their behaviors.

It has been similar for housing, and an even larger adjustment in consumer behavior, as not only have home values surged higher, so have mortgage rates. The combination of the two has rippled throughout the housing market. In Orange County, according to the Federal Housing Finance Agency Home Price Index, home values rose annually by 4.3% in 2020, the first year of COVID, up 15.9% in 2021, and surged to 22% higher through the 2nd quarter of 2022. That’s when the median value of a detached home stretched to nearly $1.3 million, a mind-blowing 51% higher than January 2020’s $855,000 median. Home values had reached unbelievable heights.

In addition to values rocketing higher this year, so have mortgage rates. Upon ringing in the New Year, according to Freddie Mac’s Primary Mortgage Market Survey®, rates were at 3.22%. They surpassed 4% in March, 5% in April, 6% in September, and reached 6.7% last Thursday, more than double the start to 2022. The combination of higher rates and higher home values has completely flipped housing on its head and consumers have changed their approach to housing.

The ultra-low-rate environment and lack of available homes on the market, which reached record low levels in 2020 and 2021, allowed home values to escalate out of control.  Mortgage rates remained at record lows from April 2020, after the start of COVID, through the first week of this year, 21-months straight where they ranged between 2.65% to 3.5%. Despite increasing values, payments for the median priced detached home in Orange County increased from $3,509 in January 2020 to $3,561 in January 2021, a rise of only $52 per month. 

Excerpt taken from an article by Steven Thomas.

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