Everything happens for a reason.
This week, some lenders began offering the 15-year fixed-rate mortgage below the 2% threshold, landing at 1.99%, albeit with more than 2 points cost. The Freddie Mac average was 2.54% with 0.7 of a point cost, the third-lowest rate in the three decades Freddie has been tracking those figures.
How do you feel about all of that? Blissful. Elated. Euphoric.
You are now in the moment. If you are a homeowner, go ahead and congratulate yourself. Your property is probably worth much more.
Unless you are sticking it out for the long haul, sell your house now. Or, refinance into these rock-bottom rates if you are sticking it out. Because I’m going to offer you a sanity check on exactly why mortgage rates are creeping down to zero. And I have some fodder for you to think about for near-term strategies.
Let’s start with the great stuff we get to celebrate.
Nationwide, home sellers realized a gain of almost $76,000 on the typical sale (based on median home prices) in the second quarter of 2020, according to Attom Data Solutions. The typical profit represented a 36.3% return on investment compared with the original purchase price. This marked yet another level of raw profits since the housing market began recovering from the Great Recession in 2012.
Can Southern California top that? Oh, yeah. A bunch.
Orange County home sellers crushed it with an average gain of $251,250, according to Attom. Los Angeles County landed at $230,000. San Bernardino County was $125,000, and Riverside County was $120,250.
And, with mortgage rates falling to record lows last week, Black Knight estimates there are 18.1 million refinance candidates with good credit and at least 20% equity who can reduce their 30-year mortgage rates by 0.75%. That’s $6.5 trillion of tappable home equity. This translates to an average savings of $290 per month.
Now, about that sanity check.
COVID-19 has already killed 143,000 Americans and made almost 4 million sick, according to Johns Hopkins.
It’s killing the economy too.
Even when we miraculously get ahead of this in the form of a vaccine, the economy will likely be too far gone.
More than anything else, jobs drive the economy, consumer confidence, housing prices and spur the direction of mortgages rates. We are in the throes of double-digit national unemployment. California is hovering around 16%!
Those lofty numbers will do nothing but further slow down and eventually crush the economy.
A recent Lending Tree survey reports more than 53% of mortgage borrowers experienced income loss due to the coronavirus pandemic.
Think about that. More than half.
The six giant U.S. banks cut $35 billion from their profits to brace for a tsunami of souring loans, according to a recent Bloomberg article.
Institutional investors (non-lending entities that purchased at least 10 residential properties) nationwide accounted for 1.4% of all one-unit home sales in Q2 2020, down from 2.2% in Q1 and the lowest point since 2000, according to that same Attom Data Solutions report.
Fitch Rating Service recently issued a report showing California home prices are overvalued by 5- 9%. CoreLogic sees a year-over-year California home price decrease of 6.6% from May 2020 to May 2021.
The U.S. share of active mortgages is roughly 53 million, of which more than 4.1 million (7.8%) are in forbearance, according to Black Knight.
Unpaid mortgages can quickly reduce national home equity. Lenders have already advanced $6.9 billion of mortgage and escrow payments to investors.
Business bankruptcy attorney Richard Golubow of Winthrop, Golubow, Hollander expects an avalanche of business bankruptcies after the November presidential election.
“In many cases, the coronavirus crisis exposed deeper systemic problems, like staggering unstainable debts run up by companies with unprofitable business models,” said Golubow. “Ultimately, government intervention in the form of printing and giving away money will end, and credit lines and bonds will need to be repaid.”
You are in the moment.
What are you going to do?
Jeff Lazerson - Mortgage Columnist since 2011