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.
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