Jul. 16–Behold the power of the lowest home loan rates ever, a milestone hit this week in a descent that hasn’t let up since the coronavirus outbreak hit the U.S.
Business shutdowns over the pandemic staggered the economy. The Federal Reserve started massive purchasing of mortgage-backed securities to bolster mortgage lending and housing, and to support financial markets. That drove bond prices up and yields down. Mortgage interest rates, already at historic lows, track with bond yields, and this week they crashed through the floor.
The average 30-year, fixed-rate mortgage dipped to 2.98%, with settlement costs — fees and points — of 0.7, Freddie Mac reported Thursday. One point equals 1% of a loan amount paid up front.
A couple living in a historic district in Oklahoma City, a firefighter and his wife, an attorney, owed $200,000 on their home, with a 30-year mortgage at 5.75%, and a monthly payment of $1,160. They wanted money to remodel.
“We did a cash-out refinance, gave them $50,000 cash back for a remodel, put them on a new 30-year loan at 3.625%, and a new payment of $1,140,” Scott Senner, a loan originator with Interlinc Mortgage Services in Edmond. “Yes, you read that correctly. New payment is $20 cheaper than the old payment, and they got the cash they needed for a remodel.”
Another couple refinanced to pay less interest over time and build up equity faster. The husband, a pharmaceutical sales rep, and his wife, a state employee, owed $390,000 on a home valued at $600,000, with a 30-year loan at 4.25% and a $2,051 monthly payment.
“We dropped their loan term to a 20-year fixed at 2.875%. Payment changed to $2,160. Over just the next five years, this will save them over $20,000 in interest, plus build up an additional $30,000 in equity,” Senner said.
Mortgage rates have been at historic lows since the Great Recession in 2007-2009. The weekly average rate has been below 6% since November of 2008, and between 4% and 5% almost every week since then, according to Freddie Mac, which along with Fannie Mae, buys mortgages from lenders to package and sell to investors on a secondary market — including the Fed. Lenders use the proceeds to make more home loans.
The average mortgage rate has been less than 4% since May of last year, according to Freddie Mac’s records, which go back to 1971.
“I have been in the mortgage business for 20 years and never seen anything like this before,” Senner said. “On one of our corporate calls last week, our stat geek read off some national statistic that said something to the effect of ‘there is approximately $6 trillion of existing mortgages in the U.S. that are at interest rates higher than the current market, however, the capacity of the industry to service that business is only $2 trillion.’
“So, needless to say, every lender in the country is buried — in a good way — right now.”
Refinancing is dominating mortgage applications, at 64.2% of the total, up from 60.1% last week, according to the Washington, D.C.-based Mortgage Bankers Association’s weekly report.
But low mortgage rates have also increased homebuyer demand, which supports the economy, but home sales alone won’t turn it around, Freddie Mac said.
“The countervailing force for the economy has been the rise in new virus cases, which has caused the economic recovery to stagnate, and this economic pause puts many temporary layoffs at risk of ossifying into permanent job losses,” Freddie Mac said.
Borrowers “should be patient, especially if refinancing, and, if buying, they should have all of their financial records and necessary information in ready-order to meet contract closing dates,” said Stephen Plaisance, president and CEO of Arvest Bank’s Mortgage Division.
Arvest Bank, based in northwest Arkansas with branches in Oklahoma, Kansas and Missouri, last week reported that it had originated more than $2 billion in mortgage loans for the third consecutive year, and at the earliest point in company history.
Real estate agents are about as busy as lenders — and every other player in home sales.
“It’s just crazy insane. Mostly to record lows on inventory I believe!” said Jennifer Blackwell, an agent with the Owasso office of Tulsa-based Chinowth & Cohen Realtors.
Sellers are receiving multiple offers, especially on houses priced under $200,000, “making it a sellers’ market for sure,” said Joanna Haley, an agent with Keller Williams Realty Elite, 5629 N Classen Blvd.
Home sales were already hot. Lower interest rates just add fuel to the fire.
“There is also a lot of cash deals going on in all price ranges,” said Patti Wilson, an agent with Keller Williams Green Meadow, 1624 SW 122.
Appraisers are “having a hard time keeping up,” said Kathy Fowler, managing broker for McGraw Realtors, 908 SW 107. Freddie Mac’s weekly survey of lenders reflects the average, which means individual loans were being made for less than 3% earlier than this week. “It seems like every time they drop below 3%, we have a surge,” Fowler said.
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