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Mortgage Rates vs. the Coronavirus: We Might Test New All-Time Lows

Posted on February 24th, 2020

Mortgage rates can be pretty volatile. Just like stocks, they can change daily depending on what’s happening in the economy.

Beyond that, mortgage rates can move based on news that doesn’t involve a report on the economic calendar, such as a jobs report, GDP, housing starts, inflation, etc.

Even if there isn’t a direct financial implication to a news story, mortgage rates can go up or down.

Just consider the recent conflict with Iran, which may have pushed mortgage rates down a little lower, even though it was unclear what the outcome would be.

It turned out to be a short-lived situation, despite any obvious conclusion or resolution, but that’s just one of many recent examples.

How the Coronavirus Could Affect Mortgage Rates

  • Fear of a global economic slowdown has hit financial markets
  • Dow Jones off nearly 1,000 points, Nasdaq down 350 points
  • Investors fleeing market for safety of alternatives like bonds
  • This has pushed the 10-year bond yield down near its all-time low

Now we’re dealing with what could be seen as a global pandemic in the spread of Novel Coronavirus (COVID-19).

It may or may not have originated in Wuhan, China, but it has rapidly made its way across the globe, with Italy just confirming a fifth death from the virus.

The World Health Organization (WHO) hasn’t yet declared the coronavirus outbreak a pandemic, but did say it has “pandemic potential.”

In other words, there’s a lot to fear due to the unknown and the very real loss of life, and that explains the recent pullback in the stock market.

At the time of this writing, the Dow Jones was off nearly 1,000 points and the Nasdaq was down over 350 points. And that’s after a bad Friday as well.

Part of that has to do with the fact that large companies like Apple have already warned of profit hits due to global supply chain issues, which may affect sales.

The trillion-dollar company acts as a bellwether to other large corporations and the economy at large.

In short, when bad news happens, stocks go down. This is the market’s natural tendency to flee the volatility of the stock market for the relative safety of the bond market.

Some investors may also seek out “safe haven assets” such as gold, which tend to perform well in times of fear and despair.

There is typically a negative correlation between stocks and bond prices, and so today we’re seeing a big drop in the 10-year bond yield.

Long story short, when bond yields drop, so too do mortgage rates.

The Coronavirus Has the Ability to Push Mortgage Rates to All-Time Lows

  • 30-year fixed rates are only about .25% above all-time lows
  • Won’t take much for mortgage rates to test new records
  • Impact will depend on whether coronavirus spreads or slows
  • Watch out for a quick reversal if any good news surfaces

We know investors are quick to ditch risk when there’s uncertainty in the air. But the bigger question is will this pullback be meaningful?

Will it actually matter in a few months (or even a few weeks), or will it turn out to be just another headline that goes away once things settle down?

Hopefully it does get resolved soon for the sake of anyone affected.

But because we don’t have those answers yet, there’s a good chance stocks will continue to fall, at least in the short term.

As such, expect increased downward pressure to apply to mortgage rates too, which might be good news for those looking to refinance a mortgage or purchase a home.

Of course, mortgage rates are already pretty rock-bottom, and not necessarily holding anyone back. It’s the sky-high home prices that are causing affordability issues.

And really, lower rates may just exacerbate an already hot housing market, which is ushering in a return to bidding wars.

With regard to how much rates might move, it’s not totally clear since the coronavirus outlook can change in an instant.

As it stands now, the 30-year fixed is averaging 3.49%, which is just 18 basis points (0.18%) above its all-time low, per Freddie Mac data.

It wouldn’t take a whole lot for rates to test new historic lows given the fear and uncertainty at the moment.

Conversely, mortgage lenders will be quick to adjust their rate sheets higher if there’s any glimmer of good news on the topic.

Remember, with rates already so low, it’s harder for them to move even lower than it is for lenders to stand put or simply increase them.

Read more: Why It Might Be Better to Apply for a Mortgage When Things Are Slow

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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Home Prices Are Expected to Rise Another 10% by Next November

Posted on December 21st, 2020

If you’re an existing homeowner, get excited, very excited.

A new forecast from Zillow says home prices are going to rise 10.3% from this November until November 2021.

That’s on top of the already stellar growth realized since around 2012, when home prices seemed to bottom and begin their meteoric and historic ascent.

Those fortunate to have purchased a home around that time are sitting really pretty, especially since they probably also have a fixed-rate mortgage in the 2-3% range.

This super bullish housing forecast is also good news for prospective home buyers, as it shows there’s still room for home prices to move higher, even if you didn’t get in early.

The caveat is that it has become increasingly difficult to win a bid on a quality property.

2021 Home Price Growth to Be Highest Since 2006

2021 home prices

  • Zillow economists are forecasting a 10.3% rise in home prices from November 2020 to November 2021
  • This would be the best gain for U.S. property values in nearly 15 years
  • Home price appreciation already hit records for both monthly and quarterly gains recently
  • The year 2021 is expected to start white-hot with a 3.6% gain by the end of February

Per Zillow, the typical home value, known as the Zillow Home Value Index (ZHVI) increased 1.1% from October to November to $263,351.

They refer to the ZHVI as “a smoothed, seasonally adjusted measure of the typical home value and market changes across a given region and housing type,” which generally reflects properties in the 35th to 65th percentile range (mid-market).

Anyway, the ZHVI has also risen 3% over the past three months, with both the monthly and quarterly gains the largest on record going all the way back to 1996.

This aggressive appreciation has home prices slated to chalk double-digit gains by next November, with Zillow economists forecasting a further 3.6% in the three months ending in February 2021, and 10.3% from November 2020 to November 2021.

That would push the typical home price in the United States to around $290,000, with $300,000 likely just around the corner in 2022.

For comparison sake, home values increased 7.5% since last year, perhaps slowed a bit by the COVID-19 pandemic when things came to a halt in spring.

What Will Drive Home Price Growth in 2021?

  • Continued low mortgage rates and limited housing inventory will be the theme
  • A new wave of Millennial and Gen-Z home buyers will also increase demand
  • And the hope of a COVID-19 vaccine should also fuel optimism for those sitting on the fence
  • All of these things will make the year 2021 yet another seller’s market

There are a number of things working in favor of even higher home prices in 2021, some of which are new and some of which are old.

As for the familiar stuff, it’s the continued availability of record low mortgage rates, which keep affordability in check despite ever-higher asking prices.

And 2021 mortgage rate predictions look similarly solid for those wondering if they’ll stick around.

Another ongoing issue that has pushed home prices higher has been limited housing inventory, which remains historically low with just a couple months of supply.

An emerging trend that has been known for a few years is the wave of prospective home buyers coming of age.

The typical first-time home buyer age is 34 years old, and there are about 45 million individuals who will celebrate that birthday over the next decade.

Collectively, we’ve got ultra-low mortgage rates, super limited inventory, and a growing number of potential home buyers.

It doesn’t take much effort to figure out what happens to home prices.

Sprinkle in a COVID-19 vaccine and you’ve got even more optimism, and perhaps more urgency for young folks to get serious and start families.

Ironically, the pandemic may accelerate a lot of plans as opposed to slow them down as people focus on what matters, not the trivial stuff.

Read more: 2021 Mortgage and Housing Market Predictions

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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Mortgage Rates vs. a Potential War with Iran

Last updated on February 5th, 2020

Well, it’s a new year and it certainly didn’t begin quietly. Might as well address the elephant in the room when it comes to your mortgage.

This isn’t the first time I’ve discussed the possibility of war and its impact on mortgage rates, with the last discussion centered on the Syrian conflict back in 2013.

At that time, the 30-year fixed mortgage was roughly 4.50% on average. As the drama unfolded, rates fell about 30 basis points in a matter of months before climbing back to where they started.

That’s the most recent example, though it might not be the best indicator of things to come because the adversaries are different, as is the scenario.

How an Iranian Conflict Would Affect Mortgage Rates

First off, we aren’t at war with Iran, at least not formally. Some argue that we’ve been at war with Iran for decades, via a cold war involving its proxies.

Secondly, that may not change as a result of the strike that took out their leading general, Qasem Soleimani.

While the rhetoric has certainly ratcheted up in recent days, nothing has materialized yet other than more threats.

There is a good chance Iran will take retaliatory action, but what action it takes will likely be the driving force behind any changes to mortgage rates.

Simply put, fear leads to lower interest rates as investors flee the stock market, which is traditionally riskier, to the bond market, which is known as a safe haven in times of turmoil.

When that happens, bond prices rise and their yields drop, and with them mortgage rates. At least, that’s the long-held theory.

It tends to work out that way, though it doesn’t all happen in a vacuum. It depends what else is going with the economy too.

Still, geopolitical events can take center stage and make a big impact in a short amount of time. The question is whether they have enough staying power to dent longer-term trends.

As I noted in my 2020 mortgage rate predictions post, opportunities were likely to present themselves, thanks to the ongoing Trump impeachment, trade war with China, and Brexit.

There Was Already Downward Pressure on Mortgage Rates Before Iran

Now we’ve been thrown another serious curveball in the way of a potential war with what many view as a much fiercer foe than Syria or Iraq.

As a result, mortgage rates have already dropped about an eighth of a point, with most pundits expecting even lower rates as this all unfolds.

Again, nothing has happened yet, in terms of retaliation, so we’re in a bit of a holding pattern, but rates were under pressure to stay or move lower before this materialized.

We already had a long list of catalysts with the potential to move rates lower, and now we’ve got an even bigger one.

Mortgage rates are pretty darn low as it stands, averaging around 3.75% for the 30-year fixed.

The all-time low is 3.31%, achieved back in late 2012 per Freddie Mac data. If this Iran situation gets particularly ugly, we could certainly revisit or even surpass those lows.

But it really depends what transpires. When we invaded Iraq in early 2003, mortgage rates bounced all over the place.

They were as low as 5.23% and as high as 6.26% in just a matter of months.

I wouldn’t be surprised if we see similar volatility in 2020, which again, will present opportunities to those in a position to pick and choose their mortgage closing date.

Longer term, a real (hot) war could actually lead to inflation and higher interest rates, though that outcome is hopefully a lot less likely.

In summary, the fear of what is to come will probably drive mortgage rates lower in the short term. But once reality sets in, rates may return to prior levels.

Iran aside, there’s still plenty of other stuff that has the ability to make a big splash in 2020, so be sure to keep a close eye on the news if you’re in the market to get a new mortgage.

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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It’s Taking a Really Long Time to Get a Mortgage Right Now

Posted on November 23rd, 2020

Similar to the increased waiting times to get a COVID-19 test these days, it’s taking an extended amount of time to get a mortgage to the finish line.

The reason is simply unprecedented demand, just like those COVID-19 tests. The more people that need one, the longer the wait, period.

This is the downside to record low mortgage rates, which while undoubtedly great for homeowners, mean mortgage lenders are absolutely slammed.

Average Time to Close Now 54 Days

oct 2020 originations

  • Home loans are taking a lot longer to close due to unprecedented demand
  • It now takes 54 days for a home loan to fund, up from 44 days a year ago
  • While purchases are taking a similar amount of time to close, refis have slowed by nearly three weeks
  • Expect your mortgage refinance to take almost two months from start to finish

While you might see advertisements telling you it’s possible to get approved for a mortgage in just minutes, that’s very different than actually closing a home loan.

Sure, you can get the ball rolling right away, maybe get a fairly solid mortgage pre-approval that has been run through an automated underwriting system the same day.

But in terms of your loan actually making it to the funding table and getting recorded, the timeline might be closer to two months than 10 minutes.

The latest Origination Insight Report from Ellie Mae revealed the average time to close all home loans increased to 54 days in October, up from 51 days in September.

Broken down by transaction type, it took 48 days to close a purchase loan in October, up from 47 days in September, and 57 days to close a refinance loan, up from 54 days in September.

For perspective, it took an average of 42 days to get a home loan closed six months ago, and 44 days a year ago.

Back in April, a refinance took just 39 days, while a home purchase took 46 days. So while purchase loan closing times have held fairly steady, refis are taking nearly three weeks longer on average.

In other words, be patient and expect it to take a while, regardless of all the cool new technology you’ve seen and heard about.

Yes, it’s easier to get a mortgage these days thanks to digital mortgage applications, including those powered by Ellie Mae themselves, but that doesn’t necessarily mean the process goes much faster.

It just means you’ll get tasks done quickly, then spend a lot of time twiddling your thumbs while home appraisals get scheduled and your loan makes it through underwriting and on to the funding department.

Mortgage Rates Fall Below 3% for First Time

  • The average mortgage rate on a closed loan fell below 3% for the first time ever
  • The 30-year note was 2.99% in October, down from 3% a month earlier and 3.94% a year ago
  • VA loans had an average rate of 2.75%, while conventional and FHA loans averaged 3.01%
  • Expect this number to dip even lower as rates have fallen over the past couple months

Ellie Mae also noted that mortgage rates fell below three percent for the first time since the company began tracking such data back in 2011.

Again, this explains why those wait times to get a mortgage have increased so much.

The report revealed that the average 30-year fixed note rate was 2.99% in October, down from 3% in September and 3.94% a year earlier.

By loan type, it was 2.75% for a VA loan, and 3.01% for both a conventional loan and FHA loan.

Combined, that was enough to push the average interest rate on a closed loan below 3%.

My expectation is this number will continue to fall as mortgage rates have only moved lower in recent months, and the data lags.

In summary, patience is a virtue right now when it comes to just about anything, including home loans.

And remember, aside from it being difficult (by human nature) to wait, mortgage lenders also tend to keep rates elevated when demand is super high.

So it could actually pay to wait to apply for a refinance until things calm down – the only dilemma there is if rates happen to rise during that time.

Don't let today's rates get away.
About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

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2021 Conforming Loan Limit Rises to $548,250

Thanks to another year of stellar home price appreciation, the 2021 conforming loan limit will increase to $548,250, per the Federal Housing Finance Agency (FHFA).

This is the maximum loan amount for mortgages that can be acquired by Fannie Mae or Freddie Mac, known as conforming mortgages.

The figure is up from $510,400 for mortgages closed in 2020, and represents the 7.42% rise in home prices over the past four quarters.

The FHFA determines the conforming loan limit each year by looking at the FHFA House Price Index (FHFA HPI) report.

The seasonally adjusted, expanded-data FHFA HPI rose 7.42%, on average, between the third quarters of 2019 and 2020.

That pushed the baseline maximum conforming loan limit up by the same amount, from $510,400 to $548,250, which becomes effective on January 1st, 2021.

Individual banks and mortgage lenders may accept the new, higher loan limits almost immediately as it takes a month or longer for a mortgage to actually fund.

While there were certainly times where it looked like the conforming loan limit could have remained at its 2020 level, thanks to the COVID-19 pandemic, real estate took off after a brief slowdown in spring.

Fun fact – conforming loan limits do not decrease, even if home values have declined. Instead, loan limits remain the same as the prior year, not that this has been an issue for nearly a decade.

In summary, this is more good news for existing homeowners wanting to refi and those looking to purchase a home, as conforming mortgages are generally easier to get approved for, and tend to come with lower mortgage rates.

2021 Conforming Loan Limits by Property Type

  • One-unit property: $548,250
  • Two-unit property: $702,000
  • Three-unit property: $848,500
  • Four-unit property: $1,054,500

While $548,250 will be the maximum baseline CLL for a one-unit property, it’ll be even higher for those financing a multi-unit property, such as a duplex, triplex, or fourplex.

In fact, those taking out a mortgage on a fourplex will now be able to stay at/below the CLL while still getting a $1 million+ loan amount, which tells you just how expensive homes have become.

There are even higher loan limits in place for Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where the baseline loan limit will be $822,375 for one-unit properties in 2021. That’s 50% higher than the baseline.

And for those financing multi-unit properties in those states and territories, the loan limits exceed $1.5 million.

2021 Conforming Loan Limits for Alaska, Hawaii, Guam, and the U.S. Virgin Islands

  • One-unit property: $822,375
  • Two-unit property: $1,053,000
  • Three-unit property: $1,272,750
  • Four-unit property: $1581,750

If you reside in Alaska, Hawaii, Guam, or the U.S. Virgin Islands, the baseline loan limit for is 150 percent of the national baseline.

This means it’s possible to get a loan amount as high as $822,375 on a one-unit property and have it still be considered conforming.

This is important for those unable to obtain jumbo home loan financing, or those looking for the lowest possible mortgage rate.

As noted, mortgage rates are typically lower on conforming mortgages because loans backed by Fannie Mae and Freddie Mac are more liquid on the secondary market, especially with the Fed as a buyer of agency mortgage-backed securities (MBS).

2021 High Cost Loan Limits (LA, NYC, etc.)

  • One-unit property: $822,375
  • Two-unit property: $1,053,000
  • Three-unit property: $1,272,750
  • Four-unit property: $1581,750

But wait, there’s more. What about conforming loan limits in high-cost regions of the country, such as New York City and San Francisco?

Well, those also enjoy higher loan limits, assuming 115 percent of the local median home value exceeds the baseline CLL.

In these expensive regions of the country, the maximum loan limit will be a multiple of the area median home value, with a “ceiling” of 150 percent of the baseline loan limit.

There are more than 3,000 counties or county-equivalent jurisdictions in the United States, and about 150 to 200 of them qualify for these high-cost limits that exceed the baseline limit.

This means the new ceiling loan limit for one-unit properties in many high-cost areas will be $822,375, which is 150 percent of the baseline $548,250.

For example, homeowners with a one-unit property will be able to refinance a $822,375 mortgage in San Francisco, or take out a home purchase loan in New York City for the same amount, with backing by Fannie or Freddie.

However, so-called conforming jumbo loans tend to come with slightly higher mortgage rates than pure conforming loan amounts.

The FHFA said the maximum CLL will be higher in all but 18 counties or county equivalents nationwide in 2021 thanks to rising property values.

2021 FHA Loan Limits

Lastly, let’s discuss the 2021 FHA loan limits, which are related to the national conforming loan limit but not the same.

The maximum FHA loan limit can actually be quite a bit lower in many low-cost regions of the United States because they calculate the “floor” at 65 percent of the national conforming limit.

In other words, if you’re buying a home or refinancing a home loan in a less expensive area, it may be as low as $356,362, which is still up from $331,760 in 2020.

I believe Phoenix, Arizona has a FHA loan limit set at the floor.

Meanwhile, the ceiling is the same 150 percent of the national conforming limit enjoyed in high cost regions, so up to $822,375 for a one-unit property in places like Los Angeles.

And even higher for multi-unit properties in those regions.

The new FHA loan limit goes into effect for case numbers assigned on or after January 1st, 2021.

Don't let today's rates get away.

Source: thetruthaboutmortgage.com

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