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.
Struggling Borrowers Want To Pause Their Mortgage Payments. It Hasn’t Been Easy.
Servicers are supposed to let many suspend payments, but getting someone on the phone can be hard.
Struggling homeowners are flooding their mortgage companies with requests for help as the coronavirus pandemic wrecks the economy. Many are having a hard time getting it.
Homeowners say they are waiting hours on the phone just to reach a real person. When they do, some are told that getting an answer could take weeks. That is a troublesome timeline for the many borrowers whose mortgage payments are due in the first half of April.
“I’m frustrated and scared,” said Chris Colgan, a real-estate agent from Northern Virginia. He said he called his servicer some 15 times in the past month.
The $2 trillion stimulus package is supposed to make it easier for homeowners to suspend their monthly payments and temper a potential foreclosure crisis. The difficulty in doing so threatens to squeeze Americans further just as the pandemic puts millions of people out of work.
The stimulus legislation that was signed by President Trump says homeowners hurt by the coronavirus or its fallout can ask their mortgage servicer for a so-called forbearance, in which their monthly payments are interrupted for up to six months, and can also request an additional six months.
Borrowers don’t have to show documented proof that they have been hurt by the coronavirus. If the loan is backed by the government, the mortgage servicer is generally supposed to grant the request. About 70% of U.S. mortgages are backed or insured by a federal agency.
Some borrowers fear that help might not come soon enough. David Jenkins, a product manager for a tech company, said he asked Fifth Third Bancorp about a forbearance last week. His wife’s job teaching Pilates exercises has become less certain, weighing on the family’s income. The bank told him that if he qualifies, he should receive written approval in the mail.
“Snail mail of forbearance approval is ridiculous,” Mr. Jenkins said.
A Fifth Third spokesman said that any borrower who “tells one of our customer-service representatives that they have been impacted by the coronavirus” will be accepted as eligible for mortgage forbearance.
The law says nothing about when borrowers have to make up the missed payments, fueling some of the confusion. Some borrowers are assuming, wrongly, that they don’t have to make up the payments later, industry officials and regulators say.
Some regulators say borrowers should have the option to make up the payments at the end of their loan. Homeowners say mortgage companies generally haven’t offered that option. Instead, many say they are being told they must make up their missed payments in one big lump sum as soon as the relief period is over.
“The messaging has not matched what’s established in policy yet,” said David Stevens, a former head of the Federal Housing Administration, which mostly insures loans for first-time home buyers. “The confusion level is extremely high.”
The Department of Housing and Urban Development sought to clear up some of the confusion this week, telling servicers they can compile the missed payments into a second, interest-free home loan for the borrower to pay off after the original mortgage. The guidelines apply to FHA-insured mortgages, which make up about 15% of all active mortgages in the U.S.
The federal regulator for Fannie Mae and Freddie Mac, the mortgage finance companies that back about half of the U.S. mortgage market, has instructed servicers to work with borrowers and to consider letting them tack their missed payments on to the end of their loan.
The AT&T store in downtown Washington, D.C., where Reggie Matthews works, was shut down about two weeks ago. He said United Wholesale Mortgage, the servicer on his FHA loan, said that he was eligible for a short-term forbearance but that he couldn’t defer missed payments by tacking them on to the end of his loan.
Mr. Matthews isn’t sure what he will do. He has asked United Wholesale Mortgage to turn off the autopay feature on his loan. The company didn’t comment.
Allowing a flood of borrowers to stop their payments temporarily could bring about a massive cash crunch for mortgage companies, which are generally still on the hook to make payments to mortgage investors even if borrowers are in arrears. (Taxpayers, though, are ultimately on the hook for federally backed loans.)
That has proved daunting to the companies, many of which are nonbanks and don’t have deposits or other business lines to cushion them. Nonbank lenders originate about 60% of U.S. mortgages.
It’s unclear how much money the companies will need, but the industry anticipates tens of billions of dollars. Ginnie Mae, a government agency that backs some $2 trillion of mortgages, announced last week it would work with nonbank lenders to help them stay afloat.
“Until the funding is more certain…they’re going to tend to be less generous to the borrower,” said Ted Tozer, a former head of Ginnie Mae who is now a senior fellow at the Milken Institute.
Adding to the confusion, many servicing call centers have been shut down, meaning customer-service reps are working from home and juggling child-care and technical difficulties. Average hold times for some of the largest mortgage companies are between three and four hours, according to estimates by Digital Risk, a technology and risk firm that advises mortgage lenders. Call volume is six times higher than mid-March levels.
Mr. Colgan, the Northern Virginia real-estate agent, started calling his mortgage company, NewRez LLC, in early March. He filled out an online form about three weeks ago explaining that his commission-based job might be put on hold as potential home buyers stay out of the market. Someone would get back to him within three days, the company’s website said, but Mr. Colgan said he never heard from anyone.
The Wall Street Journal contacted NewRez about Mr. Colgan’s mortgage on Thursday. NewRez called Mr. Colgan later that day and offered to suspend payments for April and May, both to be paid July 1. He has decided to make his payment this month, but is unsure what he will do after that.
Mortgage Rates Keep Falling — Will They Finally Drop To 0%?
Outside the U.S., lenders have even offered mortgages with negative interest rates.
Mortgage rates have dropped to record lows on eight separate occasions in 2020 so far, as the coronavirus pandemic has roiled the global economy.
But could they eventually drop to 0%? Well, if past precedent is any indication, there’s indeed a chance.
Freddie Mac deputy chief economist Len Kiefer posted to Twitter a chart showing the movements in the average rate of the 30-year fixed-rate mortgage following the Great Recession. As he pointed out, interest rates on home loans dropped in four of the five years following the 2008 financial crisis, falling roughly three percentage points.
This week, mortgage rates moved up a bit. The 30-year fixed-rate mortgage averaged 2.96% for the week ending Aug. 13, rising eight basis points from the week prior, Freddie Mac reported Thursday. The 15-year fixed-rate mortgage averaged 2.46%, while the 5-year Treasury-indexed hybrid adjustable-rate mortgage stood at 2.9%. The week prior mortgage rates had fallen to a record low for the eighth time this year.
So were we to see a repeat of what happened after the Great Recession, then rates indeed would drop to 0% — or even into negative territory. Predicting whether that will happen isn’t so simple.
“Interest rates are super hard to forecast,” Kiefer told MarketWatch. “Economists, myself included, have not had a great track record of predicting where rates would go. For many years, folks were saying rates were headed higher, and they ended up continuing to head lower.”
A 0% mortgage isn’t a fantasy — in fact, it’s the reality across the pond. In Denmark, Jyske Bank began offering a 10-year fixed-rate mortgage at negative 0.5% last year, and Finland-based Nordea Bank announced around the same time that it was offering a 20-year fixed-rate mortgage in Denmark that charges no interest.
‘For many years, folks, were saying rates were headed higher, and they ended up continuing to head lower.’
— Len Kiefer, deputy chief economist at Freddie Mac
But economists say there are many reasons to believe that mortgage rates won’t drop to 0% or lower any time soon in the U.S. For instance, Freddie Mac’s most recent forecast estimated that the 30-year mortgage would average 3.2% in 2021, not too far from where it stands now.
That’s in large part because the Federal Reserve wouldn’t likely let it happen. The Fed doesn’t directly control mortgage rates. Instead, mortgage rates roughly followed the direction of long-term bond yields, particularly the 10-year Treasury note.
However, expectations regarding the Fed’s interest-rate policy are cooked into the yields for those bonds and mortgage rates. When the pandemic became a major concern, the Federal Reserve did move to cut the short-term federal funds rate to zero — and sure enough, since then both the 10-year Treasury yield and the 30-year mortgage rate have dropped to record lows.
In order for 0% mortgages to become a reality, “We’d probably have to see negative Fed funds rates,” said Danielle Hale, chief economist at Realtor.com.
“The central bank rates in Denmark had been negative for five years or so before mortgage rates got to zero,” Hale added. “The Fed has been clear that it’s not their preferred course of action.”
A lot would need to happen for the Fed to take rates negative, including perhaps a major demographic shift.
“The U.S. population is a lot younger than Europe or Japan,” Kiefer said. “Perhaps in 10 years, depending on immigration and other things, we may look more like them. If that is one of the driving factors of inflation — we don’t know that for sure, but that’s a theory — then that could be what we would perhaps look at.”
‘The central bank rates in Denmark had been negative for five years or so before mortgage rates got to zero.’
— Danielle Hale, chief economist at Realtor.com
In other words, the aging populations in Western Europe and Japan could explain the slower economic growth those regions have seen. And it would take a serious, prolonged downturn in GDP or labor market growth in the U.S. for the Fed to feel comfortable moving rates into the negative territory.
Yet, even if that happens, rates could still stay above 0% — and that’s because of the role investors in mortgage-backed securities play. “Mortgage rates are determined by investor demand for mortgage bonds,” said Matthew Speakman, an economist at Zillow.
“A precipitous drop in rates would likely prompt a surge in refinancing demand, and loans that only generate a few payments before being refinanced aren’t profitable for investors,” Speakman added. “This dynamic would weaken investor demand and result in higher rates.”
Plus, mortgages carry some risk, since homeowners could miss payments and go into default. That risk comes with a premium that translates into a higher interest rate compared with the yield on the 10-year Treasury and other investments, Speakman said.
However unlikely it is that mortgage rates fall to 0% on average, that isn’t to say one or two lenders might not flirt with the idea. United Wholesale Mortgage, for instance, has begun advertising a 30-year fixed-rate mortgage at only 1.99% — though the low interest rate comes with steep fees.
“When we survey lenders we see a variety of interest rates,” Kiefer said. “It may be very beneficial for them to shop around because they may get very different quotes, depending on who they talk to.”
U.S. Existing-Home Sales Rose Nearly 25% In July
Sales of previously owned homes hit highest rate since December 2006.
Home sales surged in July, signaling how much the pandemic is reshaping where and how Americans want to live during this period of social distancing and working from home.
Home buyers who were reluctant to venture out in March and April when much of the country was under lockdown have returned in force since late spring. With the effects of coronavirus showing little signs of abating, many home shoppers have new priorities for a place to live, or are accelerating existing plans.
Buyers are ready to move farther from cities, now that many workers aren’t commuting every day. The pandemic has spurred some households to live closer to family, or somewhere that offers more space with so much time spent at home, brokers and economists say.
“People that were in condominiums are looking for townhomes, and people in townhomes are looking for single-families,” said Bob Chew, a group leader at Berkshire Hathaway HomeServices PenFed Realty in Ellicott City, Md. “People are at home, and the more time they spend in the home, they realize, ‘I want some different features in my home.’”
The July sales numbers were among the strongest the housing market has ever seen. Sales of previously owned homes jumped 24.7% from a month earlier to a seasonally adjusted annual rate of 5.86 million, according to the National Association of Realtors on Friday. That was the strongest monthly gain ever recorded, going back to 1968. It was also the highest sales pace since December 2006.
Mortgage rates that hovered near all-time lows helped the housing market break out of a long slump heading into 2020. Now, after a sharp decline in the early spring due to the coronavirus outbreak, pent-up demand is pushing the market even higher. Homes typically go under contract a month or two before closing, so July figures largely reflect purchase decisions made in May or June.
“The housing market is actually past the recovery phase and is now in a booming stage,” said Lawrence Yun, chief economist at NAR. “New demand has been created because of the pandemic, with the work-from-home flexibility.”
First-time buyers accounted for 34% of sales in July, NAR said, a category that includes many millennial buyers.
This group, who range from their mid-20s to their late 30s, are a growing presence in the housing market. Older millennials who delayed getting married and having children are now reaching those life milestones, which increases homeownership demand.
Younger millennials, who are now entering their 30s, are starting to buy homes more actively at an age when previous generations also began homeownership.
The housing market offers one of the few signs of strength in the U.S. economy, which has sputtered under the pandemic.
Housing starts soared 22.6% in July from June, well above expectations. New-home sales, which make up about 10% of the market, have also roared back this summer.
Home sales can have positive knock-on effects for the economy, too, as consumers spend more on home goods and renovations.
The strong demand and a shortage of supply pushed the median home price to new highs, which could make houses less affordable for some first-time buyers. The median existing-home price rose 8.5% from a year earlier to $304,100, a record high nominally and adjusted for inflation, NAR said.
Some economists warn that the recession and continued high unemployment could dampen homebuying interest later on.
Still, buying surveys suggest demand looks strong in the near term. About 40% of home buyers polled by Realtor.com in June said they are looking to buy a home sooner because of Covid-19, while only 15% said the pandemic slowed down their timeline.
Brittani Baynard and Sam Krueger decided to spend the money they’d saved for their wedding to buy a four-bedroom home in Madison, Wis., in June. They had planned to buy a house in the next two years, but the pandemic made them want to move sooner out of their apartment into a house with more space for Ms. Baynard’s 8-year-old daughter, she said.
Fearing another phase of the pandemic, Ms. Baynard said, “I want us all to be comfortable.”
In Billings, Mont., buyers are coming from as far away as Texas and New York. Some are buying houses without seeing them in person, said Deb Parker, president of the Billings Association of Realtors.
“It makes for a very competitive market, that’s for sure,” she said. “If they can sell someplace where the values are much higher, they can come in and pay cash for a house in Montana.”
Compared with the last time sales were this high, in 2006, lending standards are tighter and the supply of homes for sale is much lower, Mr. Yun said.
Demand is so robust that 68% of the houses that sold in July were on the market for less than a month, NAR said. Brokerage Redfin Corp. said more than half of its offers in July faced at least one competing bid.
In many cities, agents say inventory can barely keep pace with demand. There were 1.5 million homes for sale at the end of July, down 21.1% from July 2019, according to NAR.
Rachel Crawford and her husband experienced how tight supply is firsthand. They had already planned to move to a different state to be closer to family. “The pandemic was actually sort of an extra motivator,” Ms. Crawford said.
After they listed their house in Fall City, Wash., in July, it received multiple offers and sold within a month. They then had to make offers on multiple homes in Parker, Colo., before they had one accepted.
‘The Housing Market Is On A Sugar High’: Home Sales Are Soaring, But Is It A Good Time To Buy? Here’s What The Experts Say
The domestic property market is fueled by a government stimulus and a COVID-fueled rush to low density housing, economists say.
Americans are rushing to buy homes right now. But should you be one of them?
Sales of previously-owned homes in the U.S. rose 24.7% between June and July to a seasonally-adjusted annual rate of 5.86 million, the National Association of Realtors reported Friday. Not only did the percentage increase represent a record, but the sales volume was the highest the U.S. has seen since 2006.
It’s a stunning turnaround from just a few months earlier when the coronavirus pandemic caused record-breaking decreases in sales as Americans were staying home to avoid getting sick.
To a large extent, the bumper demand for housing is an indication that Americans are aiming to make up for lost time. Many economists believe that what we’re seeing now is essentially a postponed spring home-buying season.
“The housing market is on a sugar high brought on by government stimulus and a pandemic-fueled rush to low density housing,” said Daren Blomquist, vice president of market economics at Auction.com, a real-estate website for foreclosure sales.
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“Prospective buyers will be better positioned for success as homeowners if they understand that this sugar high will not last and make sure their decision to buy is grounded in longer term factors that will affect their ability and willingness to commit to paying down a sizable amount of debt over the next 30 years,” Blomquist added.
But even with home-sales activity reaching record levels, many Americans remain unsure of whether now is the right time to make the biggest financial decision of most people’s lives. The home purchase sentiment index from Fannie Mae FNMA, -1.80% decreased in July, as people’s view of home-buying conditions worsened in tandem with rising coronavirus cases across much of the country.
Here Are The Factors That Experts Say You Need To Consider:
Interest Rates Remain Near All-Time Lows
From a financing perspective, buying a home is something of a no-brainer right now. And indeed, record-low interest rates helped spur much of the rise in home sales.
“No matter what you’re looking for, this is a great time to buy since the current low interest rates can stretch your spending power,” said Bill Banfield, executive vice president of capital markets at Quicken Loans. “With interest rates in the two’s available, a buyer can afford much more home than they could have just a few years ago.”
While many economists expect interest rates to remain roughly this low for a while, they likely won’t get a whole lot lower. Mortgage rates have fallen in response to the pandemic and the effect it had on the economy. So if a vaccine or treatment for COVID-19 were to be discovered, rates would likely shoot upward.
“There are no guarantees,” said Tendayi Kapfidze, chief economist at LendingTree TREE, -1.22%. “So affordability could decline going forward.”
There Aren’t Many Homes For Sale
As the adage goes, you can’t buy what’s not for sale. And right now, well, there’s not much for sale across most of the country.
“Now is a great time to buy because of incredible mortgage rates, but a terrible time to buy because of inventory,” said Ralph McLaughlin, chief economist and senior vice president of analytics at financial-technology company Haus.
As McLaughlin put it, buyers are going to face a tough choice right now: Do you lock in a low rate and settle for whatever’s on the market, or do you wait for your dream home and risk a higher interest rate.
“If you plan on finding your dream home, it’s probably better to wait,” McLaughlin said. “But if you plan on trading up in a few years now isn’t a terrible time, other than low inventory, of course.”
Competition Is Driving Faster Sales And Higher Prices
The tight inventory of homes for sale right now is being met with a large swathe of eager buyers. And that’s a recipe for rising prices and bidding wars.
Median home list prices were up 10.1% year-over-year for the week ending Aug. 15, according to a recent report from Realtor.com. That’s the fastest growth in listing prices since January 2018. Low-interest rates allow prices to rise more quickly.
And homes are coming off the market at a rapid pace. Over two-thirds of the homes sold in July were on the market for less than a month, the National Association of Realtors reported. “That quick-decision environment may challenge some buyers, especially first-timers who are new to the process,” said Danielle Hale, chief economist at Realtor.com.
The good news is that high prices might coax some sellers into the market, said Holden Lewis, housing and mortgage expert at personal-finance website NerdWallet. More inventory on the market would keep prices and competition in check.
Falling prices aren’t necessarily something buyers should hold out for. “If prices fall significantly and inventory rises dramatically, that means the economy has taken a hard turn for the worse and you may have other priorities than housing,” said Robert Frick, corporate economist at Navy Federal Credit Union.
U.S. Homebuyers Face Worst Affordability Squeeze In 12 Years
Record-low mortgage rates were supposed to make it easier for homebuyers. Instead, they’ve helped push affordability to a 12-year low.
Buyers in the fourth quarter needed to spend almost 30% of the average wage to afford a typical house, the biggest share for any three-month period since 2008, according to preliminary figures from Attom Data Solutions. Low borrowing costs, now below 3% for a 30-year loan, have spurred a buying frenzy, driving up prices across the country as shoppers compete for a shrinking supply of listings.
During the pandemic, prices have increased faster than earnings, leaping by double digits in 79% of the 499 counties included in the report. More than half of those counties are now less affordable than their historic averages, Attom said in a report Thursday.
Mortgage rates ended 2020 near the lowest on record, with the average for a 30-year loan at 2.67%, Freddie Mac said Thursday.
“The future remains wholly uncertain and affordability could swing back into positive territory,” said Todd Teta, chief product officer at Attom. “But, for now, things are going in the wrong direction for buyers.”
30-Year Mortgage Rate Tops 3% For First Time Since July
Rate hits 3.02% after falling for most of 2020. Rising rates have already started to weigh on mortgage applications in recent weeks.
Americans who purchased new homes or refinanced their mortgages over the past few months may have done so at just the right moment.
The average rate on a 30-year fixed-rate mortgage rose to 3.02%, mortgage-finance giant Freddie Mac said Thursday. It is the first time the rate on America’s most popular home loan has risen above 3% since July and the fifth consecutive week it has increased or held steady.
Mortgage rates fell throughout most of 2020 after the Covid-19 pandemic ravaged the economy. That helped power the biggest boom in mortgage lending since before the financial crisis, fueled by refinancings. When rates hit 2.98% in July, it was their first time under the 3% mark in about 50 years of record-keeping.
The recent upward moves paint a clear contrast: More vaccinations in the U.S. and recent progress on the latest coronavirus relief bill have brightened investors’ outlook on the economy, a key variable in determining borrowing rates.
Mortgage rates tend to move in the same direction as the yield on the 10-year Treasury, which has been rising.
Treasury yields rise when investors feel confident enough in the economy to forgo safe-haven assets such as bonds for riskier ones including stocks. Last week, the yield hit its highest level in a year.
Freddie Mac chief economist Sam Khater said he expects a strong sales season, partly because he thinks “the uptrend in rates from here will be more muted than the past few weeks.” The Federal Reserve has said it would maintain ultralow interest rates until the economy improves.
“The Fed has seen the carnage from the last crisis, and they don’t want to pre-empt the recovery by starting to raise rates and choking off that nascent recovery,” Mr. Khater said.
However, rising rates have started to weigh on home purchase and refinance applications in recent weeks.
Higher mortgage rates could discourage some would-be buyers from trying to purchase a home during the key spring selling season, because higher interest rates translate into larger monthly payments. That could prompt people to search for a cheaper house or to put their homeownership goal on hold.
Even before the recent climb in rates, surging U.S. home prices had begun to outweigh the savings afforded by historically low borrowing rates. The typical monthly mortgage payment in the fourth quarter rose to $1,040 from $1,020 a year earlier even as mortgage rates declined, according to the National Association of Realtors.
Rising rates can also put the brakes on refinancings, which accounted for about 60% of mortgage originations in 2020, according to the Mortgage Bankers Association.
With a 30-year rate of 2.75%, about 18 million U.S. homeowners could reduce their monthly payments through a refinance, according to mortgage-data firm Black Knight Inc. When the rate rises to 3.25%, the pool of eligible homeowners shrinks to about 11 million.
Homeowners such as Lindsay Ellis of Charlotte, N.C., who closed on a refinance last month, may have locked in some of the lowest mortgage rates available for the foreseeable future.
Ms. Ellis cut the rate on her condo from about 4.6% to 2.9% through a refinance with Rocket Cos. She hasn’t decided where she’ll put the roughly $160 in monthly savings, but she plans to explore different investment options.
“I didn’t have to do a lot of the work to shop around and compare rates because the rate they gave me was great,” she said.
Ms. Ellis wouldn’t have qualified for a refinance when rates began falling last year because unemployment benefits kept her afloat for part of 2020. Ms. Ellis, a fitness director, was furloughed from her job last St. Patrick’s Day and couldn’t return until the fall. She began to consider the refinance shortly after.
Tight Supply Is Limiting Home Sales At Start Of Spring
Sales fell 6.6% in February; U.S. has more Realtors than houses for sale right now.
The record-low number of homes on the market is limiting purchases heading into the spring selling season.
Home sales typically slow in the winter before climbing in the spring, as families try to buy homes and move before the start of a new school year. For-sale listings of previously owned homes usually rise in February.
But in the past year, homeowners have been reluctant to sell due to concern about the coronavirus and fierce competition for homes. There were 1.03 million homes for sale in the U.S. at the end of February, unchanged from the revised January level, which was the lowest in data going back to 1982, the National Association of Realtors said Monday. The level was down 29.5% from February 2020, a record annual decline, according to NAR.
The inventory shortage was the key reason why existing-home sales dropped 6.6% in February from January to a seasonally adjusted annual rate of 6.22 million, said Lawrence Yun, NAR’s chief economist. “It is not that demand is disappearing from the marketplace. It is really the lack of supply,” he said.
The February sales marked a 9.1% increase from a year earlier.
The housing market has boomed in the past year, as buyers took advantage of low interest rates and the pandemic prompted new demand for homes with space to work remotely. Houses are typically selling in less than three weeks, according to NAR. The median existing-home price rose 15.8% in February from a year earlier to $313,000, NAR said.
First-time home buyers Jill Hardy and Michael Zana struggled to find homes in their price range in Santa Cruz, Calif. Ms. Hardy had $200,000 saved to spend on a down payment but kept losing last fall to cash buyers who were willing to forego home inspections.
They found a house flipper who agreed to sell a house he was renovating before it went on the market. The sale closed last month. “There was no competition for this one, which I think is probably why I got it,” Ms. Hardy said.
At the current sales pace, there was a two-month supply of homes on the market at the end of February.
Nationally, there were more real-estate agents in February than there were houses to sell, according to NAR.
Homes typically go under contract a month or two before the contract closes, so the February figures largely reflect purchase decisions made in January or December.
That means sales could slow further in March, reflecting the severe winter weather that affected much of the country in February, according to Capital Economics.
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