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The mortgage business has “come to a screeching halt”

Heard on:
A "Sale pending" sign in front of a home in San Rafael, California.

"The market was just too crazy," said mortgage broker Vivian Gueler. "The low rates drove up too much business, too much demand — and the prices, ultimately." Justin Sullivan/Getty Images

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Home prices increased nearly 20% in February compared to a year earlier, according to the S&P CoreLogic Case-Shiller national home price index. That was the third-highest reading in the index’s 35-year history. Gains of that magnitude may not continue for much longer, according to the managing director at S&P Dow Jones Indices, publisher of Case-Shiller.

“The post-COVID resumption of general economic activity has stoked inflation, and the Federal Reserve has begun to increase interest rates in response,” Craig Lazzara said. “We may soon begin to see the impact of increasing mortgage rates on home prices.”

The average 30-year fixed-rate mortgage hit 5.11% last week, according to Freddie Mac — surpassing 5% for the first time in more than 10 years. “Marketplace” host Kai Ryssdal spoke with Vivian Gueler, chief financial officer of Pacific Trust Group in Los Angeles, about what it means for the mortgage brokerage industry and the housing market.

Kai Ryssdal: So we had you on a year ago — we went back and looked it up — and we’ve been talking to you now for two years, maybe a little bit more than that. And every single time we’ve gotten you on the phone, I’ve said, “How’s business?” And you’ve said, “Oh my God, we’re unbelievably busy.” But is that still the case?

Vivian Gueler: Oh my God, no. It’s basically come to a screeching halt. Within the last, I’d say, since the end of January, once rates started to go up and the pipeline has cleared, it just really slowed down.

Ryssdal: I don’t imagine that that’s great for your business. But honestly, a slightly slower housing market might not be a terrible thing, all things considered.

Gueler: No, I mean, I agree with you. The market was just too crazy. The low rates drove up too much business, too much demand — and the prices, ultimately. So that had to be reeled in. And of course, increasing interest rates is one way of doing that. So ultimately, I think it’ll be a good thing. But we’re just going to have to ride it out, you know, at least, I would say through this year at least.

Ryssdal: Oh, wow. That long, really?

Gueler: I think so. I think rates are going to continue to rise. The Fed has already said that they’re going to increase the prime lending rate in May. And I suspect they’re going to continue to do so a bit through the end of the year. So I just can’t see them coming down. But we’ll find out.

Ryssdal: We’ll stipulate here that Los Angeles, where you and I are, is a ridiculous housing market. But the question on the broader national housing market is, how long do you suppose until the slowdown that you’re seeing here — and I’m going to assume other people are seeing in other cities — how long until that does something on prices?

Gueler: I think it’s going to take a while. We might see maybe prices go up through the year just a touch, but I just can’t see them going down, whether it’s in LA or nationally, at least within the next nine months. It takes a while for the rates to really affect the market, and there’s still no inventory. So that’s keeping the demand up. And of course, that keeps the prices up.

Ryssdal: Right. And to that inventory thing, I mean, look, if you’re thinking about selling your house but you got a really nice mortgage rate, it’s not like you’re gonna make that move and say, “Oh yeah, I’ll go from, like, 3.25% to 5%, 5.5%, 6% on my mortgage.” I mean, that’s going to be a deal-breaker right there.

Gueler: There’s no incentive for someone that has a 2.5% interest rate to sell their house. Especially if you bought it within the last 10 years, because you’ve built up some equity and you’ve got a great rate. So if you were to sell, you’d have to go into at least a rate that’s double what you have. And the price is going to be considerably more. And on top of that, you’ve got property tax, which has increased. So there’s really little incentive, which I think is why we’re not seeing a whole lot of inventory right now. People just don’t want to sell. They have nowhere to go, you know.

Ryssdal: In a business proposition sense, what do you hear from your colleagues at bigger mortgage companies? Because if it’s quiet for you, it’s quiet for a lot of people, and the mortgage business is a business. And if you haven’t got the business, you don’t need as many people, is where I’m going here.

Gueler: Right. Well, we’ve already seen several large mortgage banks close because volume is down, you know, 60%, 70%. And everyone hired over the last few years, but there’s just not enough work. So we’re seeing layoffs now, unfortunately, across the board.

Ryssdal: So just to recap here, maybe six to nine months before prices start responding. And after that, who knows?

Gueler: Yeah, we’ll see. I mean, I don’t think prices are going to come down considerably. I think they’ll level. But I just don’t see the market falling to any significant extent.

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