How the record 30-year mortgage rate affects transactions
Uncertainty, the very thing that drove the average rate on a 30-year fixed mortgage to an all-time high this week, could prevent millions of potential homeowners from pulling the trigger on a purchase.
“The rates are excellent,” said Al Fazio, a New York real estate lawyer. “Although everyone remains concerned about what tomorrow will bring,” regarding the economy and the coronavirus.
the 2.98 percent America’s most popular average mortgage rate is the lowest in half a century, according to Freddie Mac, the nation’s largest home mortgage owner. But amid continued economic volatility, banks have risen lending standards on home purchases, choosing to focus on refinancing.
Since reaching a recent high of almost 5% in 2018, the amount of interest charged by banks on home loans has regularly fell, roughly following the yield on 10-year Treasury bonds.
“Many banks are nervous about lending in a volatile employment market,” said Alan Rosenbaum, CEO of mortgage lender GuardHill. “With the virus spreading to different geographies at different times, some are very busy and some are sitting on the sidelines at the moment. “
Households backed by stimulus checks have sought cash to deal with the financial threat of the virus, making lending less costly for banks. Bank of America, Citigroup and JPMorgan Chase accounts receivable held 23% more deposits in the second quarter than in the same quarter last year, according to the Wall Street Journal.
Current homeowners may be able to refinance their mortgage at a lower rate, but banks are reluctant to let customers withdraw equity as part of the renegotiation, according to Fazio.
“Banks don’t do cash-out refinancing,” he said. “They are reluctant to take on more debt because they don’t know what the market will bring them.”
Meanwhile, the pandemic has also shaken the brokerage industry, as states and cities scramble to determine how best to conduct residential transactions while maintaining social distancing. Virtual tours were launched, home screenings were out and offers were down. Today, a growing number of states that have reopened their economies are experiencing a spike in Covid-19 cases.
Home sales fell 17.8% in April from the previous month, and fell almost 10% more in May, according to the National Association of Realtors.
Despite these declines, Rosenbaum said that a rate below 3% represents an important psychological line. The new record should help motivate tenants to buy and existing owners to swap, he said.
A home buyer who takes out a mortgage for $ 200,000 at the current rate of 2.98% would save $ 32,000 over the life of the loan, compared to the same home buyer who got that loan at 3.72% Six months ago.
And with lower rates translating into long-term savings, buyers can qualify for larger loans, allowing them to broaden their home price range.
But Fazio, partner of Capuder Fazio Giacoia, said the market will not see a sudden change in home buying. “Yes [a home] didn’t sell at three and a half percent, it might not sell at 3 percent much faster, “he said.
Contact Orion Jones at [email protected]