April 20, 2021 – The Bright Side of Higher Rates. Seems many are concerned about rising interest rates this year and whether these higher rates could “choke off” our recovery.

Economic Commentary

The Bright Side of Higher Rates. Seems many are concerned about rising interest rates this year and whether these higher rates could “choke off” our recovery. Certainly, higher rates have slowed down the deluge of refinances occurring, though there are tens of thousands who are still refinancing today. There are two points we would like to make about these concerns.

First, the higher interest rates are a sign of economic recovery and that is a good thing. We are seeing signs of recovery everywhere with the vaccination effort ramping up, in economic reports and in more optimistic forecasts. The recent addition of over 900,000 jobs last month was a great sign and many analysts are predicting an economic growth rate of over 5.0% this year with the passage of the latest stimulus bill.

The second point is that interest rates are not high. The Federal Reserve is keeping short-term rates near zero and long-term rates, such as mortgages, are still near historic lows. Even in the aftermath of the Great Recession, rates on home loans averaged higher than they are right now. Thus, rates at this level are not endangering the recovery in any way, shape, or form. If rates stay close to where they are today and the economic recovery continues to accelerate, it could be a pretty good rebound year.

Weekly Interest Rate Overview

The Markets. Rates moved lower again last week, approaching the 3.0% mark. For the week ending April 15, Freddie Mac announced that 30-year fixed rates decreased to 3.04% from 3.13% the week before. The average for 15-year loans fell to 2.35% and the average for five-year ARMs eased to 2.80%. A year ago, 30-year fixed rates averaged 3.31%, 0.27% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “Mortgage rates took another dip this week as the 30-year fixed-rate mortgage decreased by almost ten basis points, week over week. The economy is improving on the demand side and on the supply side, a variety of goods and materials remain scarce. As a result of this imbalance, pricing pressures are building and causing inflation to rise. Despite the pause in rates recently, we expect them to increase modestly for the remainder of this year.”   Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

A 40-plus basis point rise in mortgage rates over the past month resulted in approximately 7 million high-quality refi candidates who are no longer able to lock “forever rates,” according to a recent report from Black Knight. In February the mortgage data and analytics provider estimated there were 18.1 million borrowers who met broad-based underwriting criteria and could save at least 0.75% on their rate through a refi. That was back when rates were as low as 2.73%, which some coined “forever rates” because it is unlikely they’ll be as low again for decades. But on the news that mortgage rates jumped, Black Knight reported that there are now just 11.1 million “high quality” refi candidates. That is the smallest number of potential refi candidates in a year. For Black Knight, these candidates are defined as a 30-year mortgage holder with a maximum 80% loan-to-value ratio and credit scores of 720 or higher. Lenders need the stars to align on some of the dwindling number of candidates. But if they do, the average homeowner could potentially save almost $300 a month through a refinance. Roughly 2 million of these candidates could save over $400 a month, while another 1.2 million could save upwards of $745 each month, Black Knight said. Source: HousingWire

House hunters, especially those seeking a higher-end single-family home, should be prepared for some fierce competition. It is nothing new. Countrywide, 60.9% of home offers written by Redfin agents in February faced competition, up a little from 59.3% in January—that makes 10 straight months in which more than half of Redfin offers encountered competition. Indeed, bidders have been battling one another throughout the pandemic, as they face heightened demand for larger single-family residences, dwindling inventory, and increased desirability brought on by lower-than-ever interest rates. Even as interest rates inch up, the want for homes continues to increase, according to the latest data from Redfin. “The uptick in mortgage rates is likely fueling more bidding wars in the short term because house hunters are rushing to buy homes before rates rise even further,” said Redfin Chief Economist Daryl Fairweather. Redfin reports that buyer battles today are more intense than any of its agents have seen in the past, with the most attractive houses receiving dozens of offers, selling at breakneck speed and for tens of thousands of dollars above the asking price. Rapid sales and buyers’ willingness to pay so much more than the listed price is a sure sign of a market that doesn’t seem to be cooling. In February, homes essentially went under contract in 32 days—23 days faster than a year earlier—and a record 36% of homes went for more than their asking prices, Redfin reported. Source: MReport

Two reports—from ATTOM Data Solutions, Irvine, Calif., and First American Financial Corp., Santa Ana, Calif.—say despite sharp spikes in home prices, homeownership remains affordable for most workers, which continues to drive housing demand. ATTOM released its first-quarter 2021 U.S. Home Affordability Report, showing median home prices of single-family homes and condos in the first quarter were more affordable than historical averages in 52 percent of counties with enough data to analyze. That was down from 63 percent of counties in the first quarter of 2020 and 95 percent during the same period five years ago. But rising wages and falling mortgage rates still compensated for near-20 percent spikes in home prices over the past year, helping to keep median home prices affordable for average wage earners around the country. In a separate report, First American released its monthly Real Home Price Index, showing home prices, adjusted for wages, inflation, interest rates and other factors, increased by 1.2 percent between December and January. From a year ago, real house prices fell by nearly 5 percent. The report said consumer house-buying power—how much one can buy based on changes in income and interest rates—increased by 0.4 percent between December and January and increased 18.9 percent year over year. It noted median household income has increased 6.2 percent since January 2020 and by 74.8 percent since January 2000. First American Chief Economist Mark Fleming said real house prices are 25.6 percent less expensive than in January 2000. While unadjusted house prices are now 22.2 percent above the housing boom peak in 2006, real, house-buying power-adjusted house prices remain 47.8 percent below their 2006 housing boom peak. Source: The MBA