Rates have done their usual 1-2-step shift, meaning they have changed little from last week. By midweek, the 30-year fixed rate mortgage has dropped 2 basis points to settle at 2.90%, while the 15-year mortgage dropped 5 basis points to settle at 2.56%.
While unemployment overall dropped 2.0%, large cities continue to feel this more disproportionately, with places like New York and Los Angeles experiencing unemployment rates of 20.4% and 19.5% respectively. Meanwhile, renters and investors are also banking on Congress passing another stimulus bill by July 31st. Should they fail to meet this deadline, the results could be disastrous: 40 million evicted out of their homes, unemployed workers losing 50% to 85% of their benefits, a major selloff occurring in the stock market, consumer spending plummeting, and mortgage and other delinquencies going back on the rise.
are rates and the 10-year treasury getting back together?
While 10-year Treasury yields are traditionally a good indicator of rates, this has not been true since the pandemic began. This is because while Treasury yields dropped rapidly with COVID-19 concerns, falling as low as 0.318% in one session, mortgage rates did not fall as quickly nor to this extent. In April, the 30-year fixed rate mortgage averaged 3.46% while the 15-year averaged 3.03%. This created a gap between Treasury yields and mortgage rates of 256 basis points, a far cry from 2019’s average level of separation: 180 basis points.
However, after lagging behind Treasuries for several months, rates are finally starting to sink to historic lows. In June, the gap between Treasuries and rates shrunk to 243 points. Should this trend continue and should lenders grow in their capacity, we may see rates falling to the high 2’s by the end of the year. What this could mean for housing (assuming there’s enough homes to go around) is extended demand. Already, as of last week, Fannie Mae estimates that almost 60% of all outstanding mortgages have at least a 50 basis point incentive to refinance.
Pro-tip: If you’re interested in refinancing but are wary to increase your loan term, consider this: if you refinance to a lower interest rate, but continue making the same monthly payment as before, you can pay off your house sooner than you would have with your original loan. Just don’t forget to factor in closing costs!
home builders pick up the pace
According to the Census Bureau’s June Report, residential construction increased across all metrics. Housing starts were up a whopping 17.3% from May, but were down 4.0% from last year. Similarly, permits increased by 2.1% this month, but fell 2.5% from last year. A majority of the permits were for single-family homes, which went up 11.8% from last month, while dropping 1.1% on an annual basis. Multi-family homes, however, fell on both a month-over-month and a year-over-year basis. This is indicative of consumer trends as more people trade in long commutes and expensive metros for remote work and affordable suburbs.
The sole metric to increase year-over-year was units completed, as builders raced to meet buyers’ demands. With 1,225,000 new homes added to the market, units completed increased by 4.3% from May and by 5.1% from June 2019. However, builders still have a long way to go before they solve this supply issue, with national inventory down 27.4% from last year.
consumers have mortgages on the mind
Housing demand is as strong as ever. We can see this from NAHB’s latest survey, which shows that 11% of people are considering buying a home in the next 12 months. And, more importantly, we can see this from the number of purchase applications going through lenders: Purchase applications grew by 54.1% from 2019, and 20% from May. This begs the questions, why now?
Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, believes this is simply a case of pent-up demand. “Homebuying (sic) activity that was delayed by the pandemic in March and April is just being realized later in the season.” Others speculate it could be a sign of shifting consumer preferences as more opt to own their own homes as opposed to rent. Fannie Mae’s Economic & Strategic Research (ESR) group stated “home sales may remain elevated for quite some time relative to what macroeconomic conditions and mortgage rates might suggest,” eventually leading to home price growth. However, more consumer and market data is required to be sure.