February made us think the refi boom was dead and buried. Interest rates rose rapidly to over 3%. While this is still a historically low mortgage rate, the presence of a 2.5% interest rate on 30-year fixed-rate mortgages through much of 2020 meant that most pundits and analysts said the relative cost to refis meant the The boom days were over and it was time for mortgage professionals to swing their business into buying.
The last few weeks have changed this picture. Mortgage rates again fell below 3% last week after a steady decline for much of April. Does this mean that economic predictions about the interest rate environment were wrong and that the refi boom will continue? According to one economist, it’s a little more complicated.
“People often confuse the phrase” markets are efficient “with the phrase” markets are perfect, “” said Doug Duncan, chief economist at Fannie Mae. “In February, returns on the 10-year Treasury began to accelerate as the markets hit the election, the proposed $ 1.9 trillion in incentives, the effectiveness and intake of vaccines, and the impact of all of these factors on fear Evaluated people before going out and interacting. The impetus behind the rise in rates was assimilation, aggregation and action based on this information and the markets outperformed things a little. “
Duncan noted that this is not uncommon – at key tipping points, markets are not always getting things right and a subsequent correction is needed. He described this recent decline as this correction, along with commenting that somewhat more information has been released about inflation since February, specifically that it is still in line with the Fed’s targets. He continues to forecast that we will end the year with 30-year fixed mortgage rates of around 3.4%. This equates to an increase of around 40 basis points which he believes will be far more gradual than the increase we saw in September.
From Duncan’s point of view, this means there is still a lot of refinancing business to be had. He noted that if you had completely forgotten about 2020 (and I’m sure many of us would love to), jumping from 2019 to 2021 would mean a 30-year rate of around 3% for homeowners – and that Would take the opportunity to refinance. This is still the lowest rate any of us will likely see again in our lifetime. There are also still potentially millions of homeowners who for some reason didn’t refinance in 2020 and may now qualify for a high interest rate. Even when we went to a grocery store, he found that this was a relative term with a lot of refinancing volume to be had.
Further opportunities on the refi market arise due to the real estate market. Duncan noticed that a FHA Borrowers who pay for mortgage insurance may have generated enough equity in their home to use for refinancing FHA loans into a conventional loan without this insurance premium and with a lower interest rate. Again, that stock growth has opened up more opportunities for payout revisions to homeowners who may need additional liquidity.
With all of these possibilities, however, Duncan believes that the shopping market should remain the core of an originator’s business.
“I think you should always keep an eye on the buy market because that is the very core of the mortgage finance business that helps people get loans to buy a home,” said Duncan. “Refinancing is an option that can be exercised when interest rates are beneficial to you, but that is not the core of the business. It’s often the largest volume, but this was a 50-year declining nominal rate hike that rose from 18% mortgages in 1979 to 2.5% mortgages in 2020. We probably won’t see that again in our lifetimes. “