Millions more Americans could save money through a refinance as mortgage rates hit another historic low. The 30-year fixed-rate mortgage average hit 2.86% this week, according to Freddie Mac. Just one year ago, rates were considered low at 3.56%. Data analytics company Black Knight says that drop means more than 19 million Americans could save money through a refinance on their current home loans.
There is no question that the consistently low rates have spurred incredible volume for the mortgage industry. In Q2 of this year alone, volume reached $1.1 trillion. Black Knight’s data also shows there were 2.3 million refinances in Q2, a 17-year high.
In Freddie Mac’s data release notes this week, the company said, “These low rates have ignited robust purchase demand activity, which is up twenty-five percent from a year ago and has been growing at double digit rates for four consecutive months. However, heading into the fall it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity.”
While the pandemic, and subsequent response by the Federal Reserve, has helped keep rates low, there is a darker side that could prove to be a disastrous situation in the coming months. According to the Mortgage Bankers Association, about 3.2 million Americans are currently in forbearance. CoreLogic’s chief economist, Frank Nothaft, adds that the number of loans with payments 90-119 days late quadrupled between May and June. That share is now at its highest level in 21 years. When you combine the two, the serious delinquency rate, which includes homes already in foreclosure, is at its highest rate in five years.
The shutdowns associated with the pandemic led to historic job loss and left many Americans without an income to pay their bills, including mortgages. While the unemployment situation is incrementally improving, this week there were still more than 880,000 initial unemployment claims. The data from the Labor Department was worse than expected by investors.
This week also dealt a blow to the hope of getting another federal stimulus package. Senate Republicans introduced a slimmed-down version of another stimulus package. That bill was quickly voted down by all the Senate Democrats and one Republican Senator. It is likely that there will be no further votes on stimulus legislation until the Presidential election on Nov. 3.
While investors are closely watching the employment situation, this week on Wall Street was focused on a massive tech sell off. Earlier this week, the Nasdaq dropped 10% into correction territory as almost all of the FAANG (Facebook, Alphabet, Amazon, Netflix, Google) stocks, Microsoft and Tesla lost more than $1 trillion in collective market value. Many economists cite fear of a tech bubble as one of the main reasons for the sudden sell off. During that time, U.S. Treasury bonds were relatively unchanged. The yield on the benchmark 10-year Treasury note stayed mostly flat at 0.683%, while the 30-year bond yield stayed at 1.427%. Volatility continued into Friday morning as futures were up with the 10-year note yield hovering around 0.68%.
- Consumer Price Index rose by 0.4% in August. There was a sharp spike in the gasoline index (2.0%) and the used cars and trucks category.
- The latest Job Openings and Labor Turnover Summary (JOLTS) report from the Bureau of Labor Statistics shows that 6.6 million job openings were available while hiring slumped to 5.8 million in the month of July.
- The number of quits rose to 2.95 million, an increase of 13%. When the quits rate moves higher, the perception is that employees are more confident in the workforce because they’re willing to voluntarily leave their current job for a new position.
- Internal Market Bill threatens U.S.-U.K. trade deal as Brexit inches forward.