Mortgage rates are some of the lowest on record
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The sudden rate cut by the Fed last week in response to the coronavirus outbreak led to a swift and sudden rise in homeowners refinancing their loans. Coronavirus has already impacted how real estate agents are (or aren’t) showing homes and lenders are feeling the pressure to speed up the process from buyers who suddenly feel a sense of urgency. All the anecdotal evidence just turned into hard numbers with refinance applications surging to 79% compared to the week before and a full 479% year-over-year, as the Mortgage Bankers Association announced. Refinancing made up 76.5% of the applications, up from 66.2% the week prior. This is the highest weekly increase since November of 2008 when the housing downturn was at ones of its lowest points and the highest amount of refinance activity since April of 2009, when the market was still recovering.
Applications for home purchases had a more timid response, rising only 6% compared to the previous the week (12% year-over-year). Buyers have to navigate the desire to lock in a low rate with the worries over the short-term health of the economy, with particular consideration about loss of wages in the near future if employers start implementing unpaid time for their staff.
Current mortgage rates for a fixed rate 30-year conforming loan (less than $510,400) with 20% downpayment are 3.47%, which is the lowest level on record, a rate we also reached in December 2012. For loan balances over $510,400 (jumbo loans), the fixed mortgage rate dropped to 3.58% for 30-year loans with 20% downpayment. This also the lowest level since 2011 when jumbo loans became their own category.
Mortgage rates for three different borrowing scenarios
Freddie Mac
The surge in activity led MBA to revise their forecast for 2020 refinance originations to $1.2 trillion, nearly double what they had originally predicted. As Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement: “As lenders handle the wave in applications and manage capacity, mortgage rates will likely stabilize but remain low for now. This in turn will support borrowers looking to refinance or purchase a home this spring.”
The only other type of mortgage to see an increase over the past week was VA loans, whose total share of the application pool rose to 13.1% from 10.5%. FHA loans saw a decrease down to 6.9% from 9.3%. The low rates could have increased the purchasing power of some buyers which put them within reach of non-FHA loans, or perhaps those who were contemplating an FHA loan held back from committing to a mortgage while they wait and see how the economy fares in the wake of coronavirus.
Either way, the time to refinance is now.