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While lenders might have started the year expecting some rate hikes, the size and speed of rising mortgage rates had significant effects on the spring and summer mortgage markets.

“The deterioration of the financial markets and the increase in interest rates was kind of like the perfect storm,” said Daniel Rosenfeld, a loan officer with Leader Bank. “We didn’t expect it to be as rapid as it was.”

But even as the rapid rise of interest rates has shifted the mortgage market away from the strong purchase market and refinance boom that dominated the past two years, many Connecticut loan officers, including Rosenfeld and U.S. Bank’s Jarret Coleman, still see opportunities for homebuyers in the current environment.

“I don’t anticipate any mortgage disaster or crisis because there are still very conservative guidelines that are imposed to regulate the mortgage world,” Coleman said. “If rates fall in the future, then refinance – you can take advantage of lower rates – but there’s no reason to wait for rates to fall, because if values continue to climb, it only makes things more expensive in the future.”

Rapid Rate Increase Cools Market

While last year ended with some fluctuations in mortgage rates, they maintained a relatively steady pace last December, with Freddie Mac reporting in the last week of 2021 that the average rate on a 30-year, fixed rate mortgage was 3.05 percent, and on a 15-year, fixed rate loan, it was 2.33 percent.

But a couple of weeks into 2022, the average rate on a 30-year, fixed rate mortgage had risen to 3.45 percent and to 2.62 percent on a 15-year, fixed rate loan. By late June, they were up to 5.70 percent and 4.83 percent, respectively.

And last week, the 30-year, fixed rate mortgage soared its highest level since April 2002 at 7.08 percent. The average rate on the 15-year, fixed rate loan was 6.36 percent.

The more than doubling of mortgage rates in the last 10 months is fueling ongoing concerns about the housing industry.

“As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month,” Sam Khater, Freddie Mac’s Chief Economist, said in an Oct. 27 statement announcing the results of the mortgage-buyer’s weekly survey of interest rates. “In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

While the number of purchase mortgages issued in Connecticut dropped 16 percent during the first nine months of 2022, according to The Warren Group, publisher of The Commercial Record, rising rates did not bring the purchase market to a halt.

“Today’s rates are not stopping buyers from buying homes,” said Rosenfeld, who focuses on the Central Connecticut market for Massachusetts-based Leader Bank.

First-time homebuyers continued to find opportunities this year, Rosenfeld said, often with down payments of only 5-10 percent. He added that buyers of higher-end homes still put 20-25 percent down, and homes have been selling at the higher end of various prices ranges.

Some communities, like West Hartford, had competitive markets this year, Rosenfeld said. He also continued to see homebuyers who have moved away from places like New York City to work remotely from one of Connecticut’s smaller towns, a trend that started in the early months of the pandemic.

Historical Perspective Urged

With portfolio loan products that the bank keeps on its balance sheet rather than selling on the secondary market, Leader Bank has been able to offer well-priced loans despite amid the rate volatility, Rosenfeld said. Still, he has found he has to educate younger clients, who have never seen mortgage rates reach 6-7 percent, with a historical perspective about today’s rates.

Educating clients about the historical perspective on the cyclical nature of mortgage rates has also been key for U.S. Bank’s Coleman. He added, though, that for some buyers, the rise in rates has made homebuying unaffordable.

“So much of interest rates is based on perception,” Coleman said. “The way it’s been happening – and how fast it occurred – has been a sting to a lot of people, which has probably priced, especially on the lower end markets, a lot of people out.”

While the Fairfield County market where Coleman does much of his business continues to see borrowers who can afford to buy, he noted that 2022 has been a challenging year. Coleman, who traditionally focuses on the purchase market, has seen his business drop about 20 percent year-over-year. But he added that he was “very happy” to be down only 20 percent.

With inventory remaining low and refinance opportunities dwindling, competition among loan officers has increased as well, he said, noting that the strong purchase and refinance markets of the past two years added to the number of loan officers in the industry.

“It’s made it much more cutthroat, much more intense on my end because you have this overwhelming group of loan officers going for a very small amount of purchases, and that’s it,” Coleman said.

To remain competitive, Coleman said he continues to build referral relationships and take client calls at any time, including weekends. He added that he also speaks honestly with clients about the uncertainties in the current economic environment, cyclical rates and the housing market.

“There’s a famous saying that’s out there right now: ‘Marry the house, date the rate, and divorce the landlord,’ and there’s a lot of truth to that,” Coleman said. “I have some clients say, ‘Well, I’m going to wait for rates to fall,’ and there’s no guarantee rates are going to fall. If you can afford a payment today, with the rates that exist today, if you fall in love with the house, buy it.”