Interest rates

Mortgage activity is now slowing compared to 2008 due to rising interest rates

The interest rate for an average 30-year fixed rate mortgage has more than doubled year-to-date, more or less following the Federal Reserve’s rate hike campaign.

With the housing market down, “Marketplace” host Kai Ryssdal spoke with Vivian Gueler, chief financial officer of Pacific Trust Group, a mortgage lender in Los Angeles. The following is an edited transcript of their conversation.

Kai Rysdal: OK, we got you in April, when the 30-year fixed rate mortgage average was 5.1%. And you said then that business for you had “collapsed”. And one can only wonder what life is like in the mortgage industry today with rates nearing 7%.

Viviane Gueller: Ah, Kai. Yeah, if you can believe it, it actually got worse. It’s pretty quiet right now. We’re seeing a bit of activity with, for example, former first-time buyers bidding on several homes last year, and they’re just starting to pick up again. But overall it’s really quiet.

Rysdal: Are you surprised that house prices aren’t going down while rates have gone up?

Guéler: I’m surprised they’re not going down a lot, but they’re going down a bit. Right now we are starting to see price drops across the board at all price points. But yeah, relative to the interest rate, I would have thought they would drop even further at this point. Especially with the stock market also where it is. It doesn’t help, but hasn’t really affected housing prices as much as I would have thought.

Rysdal: Yeah. When you talk to your colleagues, whether in the area of ​​real estate in general or more specifically in the area of ​​mortgages, what is the mood?

Guéler: It’s quite pessimistic. I mean, there was another big lender, Finance of America, who announced the closure this week. That, coupled with a few other biggies, we’re starting to see more layoffs again, you know, with lenders at every level. So it’s not pretty.

Rysdal: It’s important to note here that it’s not like no one is buying houses. I mean, you have some business going on.

Guéler: Yes, there is still activity. And like I said, there are first time buyers coming back. They were sold last year. They are able to negotiate, they get vendor credit to buy houses. So there are still things going on. And you know, a lot of investors have to think fast and, you know, refinance properties that aren’t selling. There is still activity, it’s just very quiet.

Rysdal: What is risk appetite, right? I mean, do you do riskier loans, or do you always try to be safe? What are you doing?

Guéler: Everyone is doing the highest priced adjustable rate mortgages because the rates are so much lower. Smaller prices that still do 30 year fixed, but at a higher price people take that risk. And we’re seeing people getting started too who know that next year they’re going to refinance in about a year or so.

Rysdal: OKAY. So it’s none of my business, but when you get up in the morning, and you have a cup of coffee and you brush your teeth and you work out or do whatever you do, then do you are you going to the office? Or do you jump on the phone? I mean, what are you doing in an environment where it’s so slow?

Guéler: Well, it’s funny you ask because I’m training a little longer. And I take my time to get here. But you know, on some level, yeah, it’s good to have time. But you know, you worry. And you think, “Is there a future in this for me?” But it goes up and down, and things will get better. It’s just the nature of the market, really. You should save your beans when you have them.

Rysdal: Yes you do, you just need to save your beans. How long have you been doing this? Twenty years, right?

Guéler: Over 20 years, yes.

Rysdal: OKAY. So make a comparison between 2008 and the financial crisis and today.

Guéler: Certainly slower now than in 2008. In 2008 we saw house prices come down. So there was activity because people were going back to the market and buying. You know, there were sellouts. But right now you have high interest rates, you still have relatively high prices, and you have a stock market that, you know, is crashing. So not good.

Rysdal: Alright, so you’re the expert on this call on real estate and mortgages. How long before things pick up again for you?

Guéler: I would say maybe the end of the second quarter of 2023. The [Federal] The reserve said it would raise rates until then, possibly in the second quarter. And they do what they said they were going to do, so we kind of have to believe them.

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