After steadily increasing the week before, rates were stagnant the week of July 4th. Overall, the 30-year fixed rate mortgage dropped 2 basis points to hit 2.92%, while the 15-year fixed rate mortgage dropped 5 basis points to hit 2.62%.
While some sectors made a comeback, namely U.S. energy and precious metals funds, others are still on the recovery path. This leaves room for other burgeoning industries like e-commerce, technology, health, and electric vehicles to thrive. Unfortunately, housing is not predicted to be one of the winners of 2021, with millions on the brink of eviction and housing prices projected to fall. In the meantime, low (and I mean low) rates further incentivize homeowners to refinance.
What Goes Up, Must Come Down (Including Housing Prices)
Housing prices are on the rise, but for how much longer? According to CoreLogic’s Housing Price Index Forecast (HPI), not much. Based on their data, 2021 will see price declarations for the first time in nearly a decade. And, given the recent rise in coronavirus cases, CoreLogic has predicted an even faster drop in prices, starting with a 0.1% drop in June 2020 and eventually escalating to a 6.6% drop in May of 2021. In addition, they foresee this trend being pervasive, with all states (and a total of 125 metros) expected to experience a price drop by next year. Areas known for their tourism like Las Vegas, NV may feel this more acutely, dropping as much as 20.1% while more residential places like San Diego, CA, may only experience a drop of 1.3%.
This is based on the hypothesis that current demand and the supply shortage has propped up housing prices. However as unemployment continues to grow, most likely staying in the double digits through Q4 2020, housing prices will eventually tumble.
Time is Running Out for Congress with Millions at Risk of Eviction
As it stands, Congress is not set to reconvene until July 20th. Meanwhile, unemployment benefits and eviction moratoriums are expiring later this month. This puts approximately 22 million of the 110 million Americans living in rentals in precarious housing situations, with minority populations being particularly affected. While many efforts have already been made to keep the housing industry afloat, new proposals to help renters by extending the eviction moratorium or creating rental assistance programs have yet to gain traction.
Pro-Tip: If you have an investment property that’s financed by Fannie Mae or Freddie Mac, while you cannot evict tenants due to missed rent payments (unless this was a pre-existing issue prior to the pandemic), you can negotiate by offering a payment plan or reduced rent. You can also apply for extended mortgage forbearance, allowing you up to three months of forbearance and an additional 24 months to pay back the missed payments. It is estimated that 40% of mortgaged multifamily dwellings meet the qualifications for forbearance, so this might be worth looking into. Investment properties backed by the VA, FHA, or USDA, however, are not eligible for mortgage forbearance. The same is true of properties financed with commercial loans.
cash(-Out Refinances) Is Not King
The amount of tappable equity increased 8% year-over-year in Q1 of 2020, reaching $6.5 trillion. However, fewer people chose to use their equity, leading to a drop in both number of cash-out refinances and volume of equity withdrawn. This led to cash-out refinances representing only 42% of refinances, the lowest it’s been since Q1 of 2016.
This is in spite of the fact that roughly 90% of homeowners who qualify for a cash-out refinance stand to improve their rate. In fact, according to Freddie Mac’s Primary Mortgage Market Survey®, rates hit their lowest point ever last Thursday. Based on the falling number of rate locks for a cash-out refinance, we can expect this trend of untapped equity to continue. Refinancing as a whole, however, is faring much better, with overall refinance applications up 74% from last year.