Mortgage rates took a tumble yesterday:
Mortgage rates were already in great shape on Friday after having fallen to the lowest levels since November 2016. Rather than draw inspiration from the week’s big ticket events (Fed announcement and jobs report), the biggest source of inspiration was a flare-up in trade tensions following Trump’s announcement of new tariffs on Chinese imports. Trade war drama flared over the weekend as China’s central bank set the country’s currency at the weakest levels in more than a decade.
What does Chinese currency have to do with US mortgage rates? Quite a lot, really! The outright level of Chinese Yuan versus the US dollar is not what’s important here. Rather, it was the fact that such a move was directed by the Chinese government in an obvious retaliation to Trump’s trade war escalation. In other words, if the US is going to raise tariffs, then China is going to cheapen its currency so the US will be able to keep buying Chinese goods. Simply put, this is another major escalation of the trade war. That’s clearly negative for the global economy and economic weakness helps rates move lower.
While 30-yr jumbo rates at 3.68% (with no points) might only be mildly interesting to those who have been around (mortgage rates have been in the threes and fours for the last eight years), the segment of the market that might be energized are the move-up-or-down buyers who have felt locked in because of their low rate.
Those who purchased/refinanced with a 3-something rate can now move and get the same rate, or better!
Like it or not most buyers these days are sensitive to every economic breeze. Lots of potential buyers saw their market investments decline 5% or more in the last few weeks. Incentive to move into Real Estate? Disincentive to make the leap? You tell us. You are the expert.
Move into real estate?
I love these:
1. Any owner-occupied long-term purchase on the lower-end of each market. You have to live somewhere, and as long as you can predict that you will stay in the home for 5-10 years or more, it’s a great deal – even if appreciation tempers down.
2. The ADU craze. Buying a property where you can add a granny flat makes sense for many reasons. The buyer pool for the two-unit properties is already huge and unfulfilled, and as long as elder care is $5000+ per month, demand will only escalate.
3. Buying homes for your kids. They can’t afford to buy one now, and they really won’t be able to buy one in the future.
4. The one-story market is out of whack. Demand is high and rising but no one is selling. Only going to get worse/better, depending on which side you are on. Hoard your one-story homes (houses or condos).
5. Gentrification is real – Harlem and South Central are destinations now. Buy where you barely feel comfortable today and in 5-10 years it will be hip.
Don’t love:
1. Old massive homes on huge lots. Both the house AND the grounds will bleed you dry.
2. Vacation homes. AirBnB has crushed the demand.
3. Homes that are too small. Unless you can make them bigger, they are an odd fit for today affluent (picky) buyer.
More than anything, I recommend that you move every 6-12 months!!! 🙂
10-year at 1%?
https://www.bloomberg.com/news/videos/2019-08-06/u-s-10-year-yield-could-hit-1-on-trade-war-bofaml-s-ciana-says-video
The 10-year yield is dropping more today (Wednesday), now down to 1.63%.
However, it may not do much for housing. From cnbc:
Mortgage applications to purchase a home got no boost from those lower rates. They fell 2% for the week, the fourth straight decrease. Purchase volume was still 7% higher than a year ago.
Ironically, buyers may be souring on the housing market because of the reasons behind the interest rate drop, namely concern over the durability of the U.S. economy. An escalating trade war with China is rattling equity markets as well as shaking consumer confidence.
For most Americans, a home is their single largest investment, and as such purchasing one is a highly emotional decision. If potential buyers don’t feel good about their financial futures, even low mortgage rates may not get them off the fence and into a home of their own.
The Fed is pushing on a string by lowering rates.
Speaking on “pushing on a string”, reminded me of this recent blog post I read:
One Trick Pony: The Fed Is Pushing On A String