Lower Mortgage Rates Aren’t Likely To Reverse Sagging Home Sales (#GotBitcoin?)
Market has been weighed down by steep prices, limited starter-home inventory. Lower Mortgage Rates Aren’t Likely To Reverse Sagging Home Sales (#GotBitcoin?)
U.S. mortgage rates have tumbled to their lowest level in nearly three years, but they are unlikely to provide much of a lift to the sluggish home-sales market.
Economists said the rates could provide a modest boost to sales during the final months of this year, though few expect cheaper borrowing costs to reverse the course of a slowing market. Home sales have been weighed down by steep prices and limited starter-home inventory in many markets.
“It’s a bit of an added lease on life for this housing cycle. I don’t think it’s going to dramatically change anything,” said Issi Romem, senior director of housing and urban economics at Zillow.
Average rates for a 30-year mortgage hit their lowest level since November 2016, falling to 3.6% from 3.75% last week, Freddie Mac said on Thursday. Those mortgage rates have been falling for much of this year, after hitting nearly 5% in November.
Lower rates have had an impact in refinancing. Applications for refinancing increased 12% in the week ending Aug. 7 compared with the prior week, but purchase applications declined 2% in the same period, according to the Mortgage Bankers Association.
Existing home sales are down about 4% so far this year, according to an analysis of National Association of Realtors data by Ted Jones, chief economist at Stewart Title Guaranty Co.
The national slowdown in the housing market has been driven by high-price markets, especially in the West Coast markets like the Bay Area, Los Angeles and Seattle. Economists and real-estate agents said some of the factors driving the recent decline in borrowing costs—a weakening global economy, an intensifying trade battle with China, and new fears about a U.S. recession—are likely to have a bigger impact on the market than lower rates.
“What’s screwing everything up is the trade talks. When people have a lot of money and things are uncertain, they just kind of wait,” said Jeff Barnett, a regional manager at Compass in the Bay Area.
Mr. Barnett said business in his office is down about 20% compared with a year earlier.
Even in more affordable markets, falling rates may have come too late to offer a significant boost to the housing market. About 40% of existing home sales take place from March through June each year.
“We’re already far along in the housing season. I think people were making the decision whether to buy or not earlier in the year,” said Daryl Fairweather, chief economist at Redfin.
Agents said they have not received many calls in recent weeks as rates fell because many people are on vacation or worried about getting their children back to school.
“It came during what I would consider our back-to-school season when buyers take a little bit of a pause,” said Dakotah Smith, a Redfin market manager for Iowa and Nebraska.
The strongest headwind facing the housing market at the moment is a shortage of starter homes, said Sam Khater, chief economist at Freddie Mac. Lower mortgage rates could make those homes slightly more affordable to buyers but don’t help if they simply can’t find homes in their price range to buy.
“The price of money is really low and it’s declining but that’s not what’s holding back the market,” Mr. Khater said.
Boom In Refinancing Boosts Mortgage Lending
Lenders made $565 billion of mortgage loans in second quarter, most in more than two years.
Lenders made $565 billion of mortgage loans in the second quarter, the most in more than two years, as falling rates encouraged homeowners to refinance.
At that pace, originations could exceed $2 trillion for only the third year since the financial crisis, according to the industry research group Inside Mortgage Finance.
The rebound provided a boost to big banks including JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc., which all reported higher mortgage originations.
It was also a lift for smaller independent lenders that have expanded their market share in recent years by shifting toward refinancing. They had struggled last year as rates rose, crimping the refinancing market.
“They are getting at least one bottle of Champagne out, if not the whole case,” said Guy Cecala, chief executive at Inside Mortgage Finance.
Refinancing accounted for roughly half of new mortgages, the highest share in years, according to Mr. Cecala’s estimates. Refinance applications rose 43% in the second quarter from a year earlier, while purchase applications climbed 6.2% during that period, according to the Mortgage Bankers Association.
Average mortgage rates dipped below 4% in the second quarter, and homeowners who had bought last year when rates were closer to 5% traded in old mortgages for new ones with lower rates.
John Hastings, a loan officer at Movement Mortgage in Minneapolis, said he saw interest in particular among those looking to refinance Federal Housing Administration mortgages, which typically go to first-time homeowners. Some wanted to get lower rates, while others wanted to get out of the insurance that is required on those loans. He also saw more purchase business.
“Volume overall is definitely up from last year, that’s for sure,” Mr. Hastings said.
The broad housing market is still showing signs of cooling as high home values price many out of the market. But the window of lower rates did provide an opening for some who had been wanting to buy.
Laura Poole, a database developer at an information technology company, began looking for a home earlier this year, reasoning that she wanted to benefit from rising housing values in the Dallas-Fort Worth area, where she lives. She closed on a three-bedroom, two-bathroom brick house in suburban Saginaw, Texas, in May.
Ms. Poole ended up with a rate of 4% on a 30-year fixed mortgage from Better.com, an online mortgage startup. Lower rates helped her have confidence that she would be able to stay within her budget, she said.
“I was so scared of being in a situation where I took on this house and then right away was having money worries,” Ms. Poole said. “So for me my biggest focus when purchasing a house was the projected monthly payment.”
Vishal Garg, founder and chief executive at Better.com, said the company made about $1 billion worth of loans in the second quarter, more than in all of 2016 and 2017 combined.
The Refi Boom Is Rattling Mortgage-Bond Investors
As coronavirus pushes down interest rates, investors are demanding bigger returns to hold mortgage-backed securities.
Investors have been dumping mortgage bonds at a rapid clip, as interest rates plunge on concerns about the coronavirus pandemic and spur a flurry of refinancings that is creating bottlenecks through the mortgage system.
Mortgage-backed securities, which package together pools of home loans, trade in one of the most liquid bond markets in the world, and investors typically deem the securities to be nearly as safe as government bonds. The Federal Reserve holds large portfolios of both on its balance sheet.
But stark differences between the two markets have shown up in recent days, pushing down prices on mortgages securities even as Treasury prices generally rise amid strong demand. Prices typically rise as yields fall.
The differential between the yield on a mortgage-backed securities index tracked by Tradeweb and the 10-year Treasury yield jumped to about 1.5 percentage points from less than 0.5 points a week earlier, hitting its largest point in years. That differential roughly measures the additional amount that investors demand over Treasurys to hold mortgage bonds.
The sharp moves show how investors that long viewed a vast array of assets as containing relatively little risk are suddenly distinguishing between them and trading accordingly. While investors have largely been able to transact in the market, many are souring on certain investments in case conditions deteriorate further.
“You just want to be prepared if it goes from bad to ugly to catastrophic,” said John Kerschner, head of U.S. securitized products at Janus Henderson Investors. Still, Mr. Kerschner said his firm bought mortgage bonds on Thursday expecting the Fed could step in to support the market.
One defining aspect of mortgage investments is the way mortgages get paid off. When falling rates spur homeowners to refinance into new, lower-rate mortgages, the investors in the old mortgages and mortgage-backed securities lose out on higher payment streams.
Mortgage rates are near their lowest level ever, as concerns about coronavirus push down interest rates around the world. That helped spur refinancing applications to their highest level since 2009 this week, according to an index kept by the Mortgage Bankers Association.
The fast pace at which mortgage bonds are expected to pay down has investors on edge, said Walt Schmidt, senior vice president of mortgage strategies at FHN Financial.
“It’s been a really ugly kind of trade for the last couple of sessions,” Mr. Schmidt said Thursday afternoon.
The refinancing surge has also created a large amount of new mortgage bonds, but those bonds are paying fairly low rates. That has led to an imbalance between a growing supply of bonds and lackluster demand from investors, analysts say.
Lower Mortgage Rates Aren’t,Lower Mortgage Rates Aren’t,Lower Mortgage Rates Aren’t,Lower Mortgage Rates Aren’t,Lower Mortgage Rates Aren’t,Lower Mortgage Rates Aren’t,