If you are thinking of selling your house this summer, expedite your plans!
Volatility has returned to the mortgage market in grand fashion this week with many lenders quoting rates that are as much as a quarter of a point higher than they were last week. That means if you were looking at something in the 2.75% neighborhood on Friday, it could be 3.0% today. What gives?
The upward pressure is nothing new, really. It has existed in the broader bond market since August, but only recently began spilling over to the mortgage market. We’ve been discussing the increased risks of such a spillover in the event of a sharper bond market move and yesterday brought just such a move. Today was much more docile by comparison, but it didn’t do anything heroic to push back against yesterday’s weakness.
Still, there could be some promise of stability in the fact that the bond market was even able to hold steady today. Reason being: economic data and other events clearly suggested another bad day for bonds. Retail Sales surged at one of the best paces on record and inflation rose abruptly at the producer level. Both of those headlines make strong cases for higher rates, but Treasury yields ended the day slightly LOWER than yesterday. That sort of resilience may be a clue that bonds have had enoughweakness for now (bond weakness = higher rates, all other things being equal).
Mortgage lenders are WIDELY stratified in terms of rate offerings with the more aggressive crowd averaging 2.875% (no points) on top tier 30yr fixed refinances and the less aggressive crowd being closer to 3.125% (conventional 30yr fixed).
Link to Article
A simple one-day surge will only cause the few buyers who have a property right in front of them to hurry up and buy it. If rates continue into the 3s, it will affect everybody.
Recovery prospects, renewed focus on stimulus, inflation concerns, a brighter covid outlook, etc… All of these are reasons for an ongoing, gradual trend toward higher rates in 2021 (i.e. general bond market weakness) but none of them really explain why the bond market had its worst day in months today specifically. Still, pundits are pointing to the laundry list of usual suspects to explain the move. In their defense, that’s all anyone can really do on a day like today. At a certain point market momentum becomes its own justification and bond prices snowball to lower and lower levels.
When bond prices fall, rates rise–a fact which is abundantly clear in comparing today’s rates to those seen late last week. The average lender is quoting conventional 30yr fixed rates that are roughly 1/8th of a percent higher, and that’s a huge move for a single trading day.
Doubling in eight years, the number of local homeowners who have at least 50% equity is impressive.
Those who are 55+ and anxious to take their property-tax basis with them to their new home can feel free to list their existing home for sale NOW, and close after April 1st to qualify!
Health, unemployment, stairs, taxes, finances, politics…….selling your home is becoming the answer for everything!
More than 2.5 million American homeowners have stopped paying their mortgages, taking advantage of penalty-free forbearance periods offered by lenders.
What happens when the free pass fades away next year?
Not much, and certainly nothing approaching the flood of foreclosures that defined the Great Recession, according to the emerging consensus among economists. While some homeowners are sure to feel the pain of forced sales, housing experts increasingly expect the end of forbearance to be a non-event for the gravity-defying housing market.
That’s largely because home prices have risen sharply during the coronavirus pandemic. As a result, homeowners who find themselves unable to pay their mortgages when their forbearance periods end likely will be able to sell for a profit, rather than going into foreclosure.
“If they have equity, they can always sell off the house and pay the mortgage,” says Ralph DeFranco, global chief economist at mortgage insurance company Arch Capital Services. “It’s not a great outcome, but it’s less terrible than letting the bank take it and sell it.”
Link to Article
We know that the ultra-low mortgage rates and tight inventory have been driving the market wild.
But here’s an extra boost – the strict mortgage underwriting that began in April is being relaxed:
Credit Loosening: According to the NFCI credit index, a composite measure of credit conditions, credit tightened dramatically in mid-April to its most conservative level since 2009 due to the increased economic uncertainty driven by impacts from the pandemic. Since then, credit availability has loosened, even reaching pre-pandemic levels in August. This credit composite takes into consideration many different credit indicators, giving a comprehensive picture of credit conditions in the U.S. When lending standards are tight, fewer people can qualify for a mortgage to buy a home. Likewise, when standards are loose, more people can qualify for a mortgage and buy a home. Credit loosening in August compared with last month increased housing market potential by 266,640 potential home sales.
The graph above is somewhat misleading because they are only reflecting the month-over-month differences. The improvement of ‘house-buying power’ due to low rates has already been in place for months now, so the increase from July isn’t that dramatic.
I’ve heard that the qualify-using-bank-statements mortgage is back, so that will add a few self-employed buyers who can’t qualify using their tax returns. More competition!
Today we should see another all-time-low record in mortgage rates!
What is the impact?
Here’s how it pencils:
If we just go back to the 52-week high of 4.75%, you could borrow $808,000 and pay $4,215/mo.
If you shopped around to get a 3.0% jumbo rate today, you’d pay a point or so, but you could borrow $1,000,000 and have a payment of $4,216 per month.
Within a 12-month period, the borrowing power has gone up from $808,000 to $1,000,000 with no change in payment!
This is why sellers don’t mind pushing their list prices – they want to share in the benefit!
Mortgage rates were unchanged today for the average lender. That means they remain at all-time lows that are even lower than the all-time lows seen during the previous 3 business days. Even so, today’s underlying market movement might be a bit of a wake-up call for anyone waiting to lock an interest rate.
In general, the decision to lock or float a mortgage rate has had low consequences recently. While that will likely continue to be the case until the coronavirus situation meaningfully improves, it doesn’t mean we should fall asleep at the wheel. We need to remain vigilant for signs that the most recent all-time low mortgage rates are the last we’ll see for months or years.
Today served as a fairly non-threatening wake-up call in that regard–at least for those following the intraday movement in the bond market. Mortgage rates are ultimately dictated by the bond market. When yields move higher (and specifically when mortgage-backed bond prices are moving lower), we need to be on the lookout for mortgage rates to move up. That was exactly the sort of market movement we saw this morning, and it forces some of the risk takers out there to question how many times they will push their luck before finally resigning to lock.
There is NO WAY to know when rates have finally bottomed. So it’s best to decide a personal set of rules as to how you’ll approach the lock/float decision.
What can we know about the future? That’s tough because coronavirus has changed the playbook to some extent. In general, though, mortgage lenders are hesitant to drop rates very aggressively when they’re already at all-time lows. I can also tell you that, outside of an apocalyptic scenario, mortgage rates are highly unlikely to drop by more than half a percent (which is still significant). Even dropping by that much would require a significant deterioration in the covid narrative.
But how about we discuss this in a slightly simpler way. People always ask me for predictions, and I always tell them why it would be silly for me to provide and for them to put any stock in such things. What I CAN do is give you my sense of the most and least probable rate ranges within the next 3.5 months (presidential election will likely create new volatility for better or worse).
Most probable: 0.25 lower to 0.25 higher
Somewhat probable: 0.25 to 0.50 higher
Less probable: 0.25 to 0.5 lower OR 0.50 to 0.75 higher
Improbable: >0.5 lower or greater than 0.75 higher
Please keep in mind that this is as of July 8, 2020. Things can and do change rapidly when it comes to pandemics and financial markets. That said, if your takeaway is that we’re slightly more likely to see a 0.5% move higher than a 0.5% move lower, that is indeed what I am saying. Again, it would take further deterioration in the covid narrative to reverse that order. That’s totally possible, but it’s not a given as of today.
The record-low rates probably haven’t helped the higher-end areas as much because the 30yr jumbo rate is higher – though you can pay to get into the mid-3s. An excerpt from MND:
How much of the strength in the housing market is due to mortgage rates holding near all-time lows?
Unequivocally, rates are helping housing numbers reach higher than they otherwise would be, but keep in mind, mortgages are much harder to get for certain scenarios right now. Beyond that, the home shopping process has challenges of its own that are keeping some would-be buyers sidelined for a bit longer.
The takeaway is that the bounce back in housing numbers is just like the bounce back in many other sectors of the economy. Things got bad enough that there was simply plenty of room for improvement.
No one is saying “everything’s fine now… back to business as usual!” Rather, many things are just quite a bit better than they were–so much so that we’re now in a position to debate whether the recovery narrative continues or cools off. That’s a debate that will remain open as long as COVID-19 numbers are pushing back on states’ lifting of quarantine measures.
Rates with no points
More purchase apps reported today:
Buyers are rushing back into the housing market, enticed by record low mortgage rates and a pandemic-induced need to nest like never before.
Mortgage applications to purchase a home rose 4% last week from the previous week and were a remarkable 21% higher than one year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. That was the ninth consecutive week of gains and the highest volume in more than 11 years.
“The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence,” said MBA economist Joel Kan.
Plus the loan-qualifying by bank statements (instead of tax returns) is coming back – though with 15% down payments, instead of 10%:
Another good time to lock your rate. From MND:
Mortgage rates moved lower again today, with the average lender erasing a good amount of the weakness seen last week. That’s good news considering rates hit all-time lows on the afternoon of June 1st (last Monday). After that, however, rates rose at their fastest pace in several months, raising some concern that the bond market (which underlies rates) was shifting gears in response to stronger-than-expected economic data.
It remains to be seen whether these past 2 days constitute a reversal in a negative trend or if they’re merely a token correction to last week’s rate spike. In other words, are things good or are they just noticeably less bad than they were? We won’t be able to answer this until we see how things play out in the coming days.
Tomorrow’s Fed announcement is the biggest potential flashpoint for volatility in the bond market this week. The Fed will certainly continue to buy Treasuries and mortgage-backed bonds. This is a key ingredient in keeping rates as low as they have been. Within the scope of “still buying bonds,” the Fed has some leeway in terms of how much it buys and how much it promises to buy. Some investors are looking for the Fed to firm up its bond buying commitment tomorrow, and that would likely help rates continue to calm down (as long as the promise is to keep buying as much as they have been).
Loan Originator Perspective
A big move back into the range for both treasuries and MBS today. Days like today make people want to wait to see if rates improve further. Chances are rates have room to go lower, but what tomorrow brings is anyone’s guess. The recommendation is to lock in as early in the loan process as possible, as long as you have a clear Closing date in place. –Gus Floropoulos, VP, The Federal Savings Bank
Bonds opened stronger, near their best levels ever this AM, before fading slightly following a weak treasury auction. Today’s rates are at (or almost at) all time lows. If you have the ability to lock at these levels, why not do so? –Ted Rood, Senior Originator, Bayshore Mortgage
Seems bonds have tested the top end of range and have rallied nicely over the last couple days. Based on my advice, my clients are taking advantage of today’s improved rate sheets and locking in. – Victor Burek, Churchill Mortgage