It\’s been an eventful three weeks possibly even since the U.S. presidential election were held, that is, if you keep an eye on increasing.
They\’ve moved in only one direction since November 8th C up. In place. Though thanks to their pre-election starting place, they remain historically low and economical to anyone old enough to keep in mind where they stood a decade ago.
In case you forgot, the 30-year fixed averaged 6.24% in November 2006, per Freddie Mac data, about two percentage points above current levels. So yeah, things are still pretty darn good.
However, since most homeowners these days hold rates that will be much lower, the benefits of refinancing have quickly diminished for millions because of recent rate rise.
4.3 Million No Longer In the Money
There are times when it feels right to refinance your mortgage, and events when it does not, often dictated by prevailing rates of interest.
Unfortunately, mortgage rates have risen about a half point since then, much more than halving the number of potential refinance candidates, this in line with the latest Mortgage Monitor Report from Black Knight Financial Services.
The company said the refinance population dwindled from 8.3 million borrowers pre-election to only 4 million today thanks to a 49 basis point (bps) surge in rates.
That matches the lowest refi population in Two or three years, with the most recent low set back in July 2015.
In short, the mortgage rate increase means fewer borrowers can be entitled to a refinance thanks to DTI constraints, and fewer will actually benefit from the lower payment, because noted, many already enjoy ultra-low rates.
This is undoubtedly bad news for mortgage lenders, most of which rely on refinances (as opposed to purchases) for any bulk of their loan origination volume.
It makes new startups like Motto Mortgage look really smart for partnering directly with brokers, which happen to focus mainly on home purchase financing.
Still, there\’s two million borrowers out there (somewhere) who could save roughly $200 monthly by refinancing their mortgages, which represents a cumulative $1 billion a month in savings.
Unfortunately, that amount is less of the $2.1 billion monthly in savings that was there for the taking just before the election.
Equivalent of an $16,400 Home Price Increase
Now let\’s discuss home prices, which everyone assumes will just fall ever since interest rates have increased.
Black Knight added how the 49 basis point rate rise was roughly the same as home prices increasing $16,400 overnight.
As the result, 21.6% of median monthly salary is now needed to purchase the median-priced home in the nation, the highest share since June 2010, at one time when mortgage rates averaged 4.75%, but house values were 20% cheaper.
The affordability ratio hit an identical point in 2013 when it increased to 21.4%, and annual home price appreciation slowed tremendously, from nine percent to below 5 %.
But note that home prices continued to, just at a slower pace. Though a fast pace, just not the insane pace we were looking at enjoying.
So, to assume home prices will fall because mortgage rates jumped might be a mistake in judgement. However, would-be buyers and fence-sitters could be spurred into action, fearing it would be the last time to get a super low type of loan.
That may increase home buying competition inside near-term and keep price appreciation on track. In other words, if you\’re waiting for house values to fall as a result of the velocity rise, don\’t hold your breath.
Once the recent rate increase is factored in, the national housing payment-to-income ratio continues to be 10% lower than the benchmark amount of 1995-1999, per Black Knight.
Perhaps this hot property market has a lot more room to run-