Mortgage rates inch up amid recovery
Homebuying frenzy in pandemic shows signs of slowing
The housing market has been on a tear.
Months of social distancing and working from home had people desperate for more space, home offices, swimming pools, backyards. And money was cheap — a combination of the economic uncertainty caused by the pandemic and federal policy had driven down mortgage rates to record lows. Some were able to secure 15year mortgages for as little as 2 percent, the target inflation rate, said Frank Nothaft, chief economist for real estate analytics company CoreLogic.
Now, as vaccines are rolling out and the economic outlook improves, the frenzy is showing signs of slowing.
The average rate for a 30-year fixed-rate mortgage in the week ending April 1 was 3.18 percent, more than half a percentage point higher than in January, according to a survey by the governmentsponsored mortgage-finance company Freddie Mac.
And while it is still a seller’s market, with home prices rising quickly and mortgage rates still comparatively low the higher rates are having an effect.
“It’s softened a little bit,” said real estate agent David Atkins. “At least as far as people going, ‘I’ll take anything, and anything, and anything I can get my hands on.’” A lot of that change in attitude, he explained, is tied to mortgage rates’ recent rise.
That, coupled with a surge in home prices — Houston homes this February sold for a median price of 12.6 percent more than the year before — has pushed affordability out of reach for some who would otherwise be considering their first home, Nothaft explained. An increase in home prices means an increase in both the down payment that needs to be saved and in the monthly payments that will have to be made.
“There’ll be some homebuyers who will say, ‘Oof, it’s gotten too
expensive for me,’” Nothaft said. “‘Either I can’t save up the money upfront, or, even if I have that, the mortgage payments now have gotten too high — it’s going to bite into my monthly income too much.’”
That will have an impact on the rate of home price growth by the second half of the year, he said. CoreLogic forecasts home prices will stop surging by the double digits year over year and settle to something more in line with wage growth.
However, Nothaft believes inventory added by customers who held their homes off the market until they could get vaccinated will help home sales continue apace. Atkins, for example, had one customer in her late 70s who had waited until she received both her COVID vaccination shots before putting her home on the market.
Rising mortgage rates also shrinks the pool of homeowners who can benefit from a refinance. The number of homeowners that Black Knight, a mortgage technology and data provider, believes could benefit from a refinance has shrunk to 11.1 million (218,000 in the Houston region), the smallest it has been since March of 2020. The Mortgage Bankers Association said refinance applications in the week ending March 26 had fallen 32 percent from the year before.
Mortgage rates fell to alltime lows during the pandemic and the accompanying recession because of economic uncertainty. When investors are concerned about the future of the economy, they seek safer investments and pour money into government bonds and mortgage debt, driving rates down.
With the latest stimulus bill pumping money into the economy, the Fed has signaled its willingness to tolerate some inflation and investors are moving back into the stock market, allowing rates to adjust to more normal levels. They still remain relatively low — a year ago, the average for a 30-year mortgage was 3.33 percent, and the year before that, it was 4.08 percent.
“Investors welcomed the rise in private employment numbers and consumer confidence with a shift toward stocks, driving mortgage rates up,” said George Ratiu, senior economist with the listing website realtor.com, in an email.
Erika Bierschbach, who majored in economics and works in the energy industry, was following just those factors when she decided to pull the trigger on a refinance. Throughout most of 2020, she watched as the recession kept rates low. “We were waiting to see what would happen with the pandemic,” she said. Then at the beginning of the year, with vaccinations rolling out, the stock market soaring and a new stimulus bill on the horizon, she began shopping around for mortgages.
She closes on the refinance, which will save her upward of $600 a month, this Friday. “Wow is right,” she said. “I just don’t believe we’ll be down at these levels again for some time.”