William Raveis Mortgage Regional Vice President Melissa Cohn speaks with Yahoo Finance Live about the current state of mortgage rates and why homebuyers shouldn't expect lower rates any time soon.
DAVE BRIGGS: Let's talk more about mortgage rates with Melissa Cohn, William Raveis Mortgage regional vice president. Melissa, nice to see you. Thanks for coming on. Where do you see these rates flattening out? And what do you think will be enough to really thaw what has become a frozen housing market?
MELISSA COHN: Well, I think the good news is, is that we are seeing that inflation is moderating and cooling as we saw this morning with the CPI number. And we're seeing other signs of weakening in the economy, and that means that bond yields are coming down. The 10-year Treasury was at a 3.45 the last time I looked at it, and mortgage rates have declined by almost a full percentage point since they peaked in November.
And I think that we can expect mortgage rates to go down another quarter or even as much as a half a percent over the course of the next month. It's the beginning of 2023. Everyone is back to zero in terms of meeting their goals. And everyone has to bring loans in the door. And I think banks are going to sharpen their pencils. They're going to tighten up their margins and do whatever they can to bring volume in the door. And lower rates will bring more real estate transactions. We also saw another figure that refinancing was at the highest level it's been in a while as rates have declined.
DAVE BRIGGS: I do want to follow up on that refinancing in a second. But what would you tell those buyers who have been sitting on the sidelines, waiting for rates to return to that mid to low 3 level in order to get back in on this market?
MELISSA COHN: Well, I think people can't expect that we're going to go back to a 3% 30-year fixed rate. Now that happened because of COVID and the pandemic. And we don't want to find ourselves in that position again. If we can get interest rates to go back to where they were pre-COVID, call that anywhere from 3 and 3/4% to 4 and 1/2% that would be a home run.
But buyers need to-- my favorite expression is you marry the house, and you date the rate. So they want to find a way to get into the house today. You'll generally find that when real estate-- when mortgage rates are higher-- excuse me-- that real estate prices tend to be a little bit softer, and when interest rates do come down-- and they will come down more than just the quarter or half a percent over the course of the next year, year and a half-- real estate prices will start to go back up again. And there will be more competition for the homes on the market.
SEANA SMITH: Melissa, for the first-time homebuyer, I think applying for a mortgage sounds very daunting. A lot of people don't know where to turn. What is your advice to that first-time homebuyer in terms of what they need to know when doing that?
MELISSA COHN: Well, I think that they need to, first of all, be willing to take into consideration looking at an adjustable rate mortgage, looking at a five or a seven-year adjustable, that means that that rate is fixed for the first five or seven years, and it's the same thing as a fixed rate for that initial period. But the rate is going to be lower, and it'll make the home that much more affordable.
They also need to make sure that they've done everything to keep their credit scores as high as possible because in many banks, price rates based on someone's credit score, and to make sure that they have sufficient money for the down payment and for reserves. We find a lot of first-time homebuyers getting stuck because they maybe have enough money for the down payment, but haven't taken into consideration all of the closing costs and what you need to have for reserves.
And the last thing is in terms of looking at your credit, make sure you have enough credit. So many people today, especially younger people, tend to live off of a debit card or perhaps just one credit card. And many of the banks with better rates are going to want to see someone having three to four different active trade lines on their credit history.
DAVE BRIGGS: Those arms adjustable rates certainly come with the downside. What's your word of warning to people that do go that route?
MELISSA COHN: Well, I think the risk that you have with an adjustable rate is that either that you've had some sort of negative work issue, where you no longer qualify to refinance, or for whatever reason, if the value of that home, drops, you may not have the equity to refinance. But if you're locking in for-- I say a seven-year adjustable is a safe period of time, you're going to mitigate those risks.
Now, really, the goal is what can you do to get into a house today, and then be prepared to refinance when fixed rates get down to a more acceptable level if you think you're going to be in that home long-term. Most first-time homebuyers are not in their home for 10 or 15 years. The average tenure of that home is probably closer to seven or eight years.
SEANA SMITH: Well, so going back to that advice here for the first-time homebuyer, you mentioned the down payment, how critical that is. People need to think about not only what they're putting down, but also budget for what they will be paying on a monthly basis going forward. 20%, that often is the number thrown out. Is that the best number, aside from, obviously, an all-cash offer for a person that is buying a house to put down?
MELISSA COHN: Well, I mean, the benefit of putting 20% down is that you don't have to have the mortgage insurance. So that saves you on a monthly payment. If you are a first-time homebuyer for a conventional loan, which now goes up to $726,000, except in the high cost areas where it's even higher, over $1,000,000, you can put down as little as 3%. So but you obviously, the less you put down, the higher the payment and the higher the mortgage insurance that you're going to have to pay on top of the mortgage payment-- the insurance, the taxes.
SEANA SMITH: Melissa Cohn, William Raveis Mortgage regional vice president, thanks so much for joining us here this afternoon.