As mortgage rates plunge, millions more homeowners can benefit from refinancing
KEY POINTS
- There are now about 5.9 million borrowers who could see their rates drop by at least 75 basis points by refinancing their mortgages. That is an increase of 2 million in just the past month, according to Black Knight, a mortgage software and analytics company.
- That is the largest population of eligible candidates in nearly three years and represents an aggregate of $1.68 billion in potential monthly savings. Per borrower, the savings is about $271 per month.
- The average rate on the popular 30-year fixed has fallen from a recent high of 4.23% on May 21 to 3.94% now, according to Mortgage News Daily.
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The stock market recorded another dismal week to close out the month of May which was also the worst performing month since December. Investors fled stocks to move money into safer-haven assets such as Treasuries following a sharp escalation in contentious trade talk between the U.S. and China and an announcement of new tariffs on Mexican goods.
During the week President Trump repeated he was “nowhere near ready to make a deal” with China and Vice President Mike Pence said the U.S. “could more than double tariffs on China if needed.” China countered this past Friday by stating it was assembling an “unreliable entities list” of both companies and individuals that would be restricted from doing business with Chinese companies. China also said it was planning to restrict the export of rare earth metals to the U.S. that are used in high-end electronics and strategic applications in the aerospace, communications and defense industries. China produces approximately 80% of the world’s rare earth metals. China also reportedly postponed May U.S. soybean purchases.
Friday, the stock market was negatively impacted after it was announced there would be a 5% tariff rate on all goods imported from Mexico starting on June 10. Furthermore, the tariff rate would be incrementally increased during the summer to reach 25% by October 1 unless Mexico takes serious action to prevent the flow of illegal migrants crossing our southern border from Mexico.
In housing, the Federal Housing Finance Agency (FHFA) released last Tuesday their latest House Price Index Report for the first quarter of 2019 ending with March. U.S. house prices rose 1.1% percent in the first quarter of 2019 and were up 5.1% percent from the first quarter of 2018 to the first quarter of 2019. The FHFA’s seasonally adjusted monthly index for March was up 0.1% from February.
Home prices increased in all 50 states and the District of Columbia between the first quarters of 2018 and 2019. The top five areas in annual appreciation were: 1) Idaho 13.4%; 2) Nevada 10.6%; 3) Utah 8.9%; 4) Tennessee 7.7%; and 5) Georgia 7.5%. The areas showing the smallest annual appreciation were: 1) Maryland 0.5%; 2) Delaware 0.7%; 3) Louisiana 1.0%; 4) Alaska 2.1%; and 5) Wyoming 2.1%. Of the nine census divisions, the Mountain division experienced the strongest four-quarter appreciation, posting a 7.2% gain between the first quarters of 2018 and 2019 and a 1.7% increase in the first quarter of 2019. Annual house price appreciation was weakest in the Pacific division, where prices rose by 3.7% between the first quarters of 2018 and 2019.
Also last Tuesday, the S&P/Case-Shiller Home Price Index was released showing the seasonally adjusted home prices for the benchmark 20-city index were up 0.09% month-over-month. The non-seasonally adjusted index was up 2.7% year-over-year. Analysts had forecast a 0.2% month-over-month seasonally adjusted increase and 3.1% year-over-year non-seasonally adjusted for the 20-city series.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, remarked “Home price gains continue to slow. The patterns seen in the last year or more continue: year-over-year price gains in most cities are consistently shrinking. Double-digit annual gains have vanished. The largest annual gain was 8.2% in Las Vegas; one year ago, Seattle had a 13% gain. In this report, Seattle prices are up only 1.6%. The 20-City Composite dropped from 6.7% to 2.7% annual gains over the last year as well. The shift to smaller price increases is broad-based and not limited to one or two cities where large price increases collapsed. Other housing statistics tell a similar story. Existing single family home sales are flat. Since 2017, peak sales were in February 2018 at 5.1 million at annual rates; the weakest were 4.36 million in January 2019. The range was 650,000.” Blitzer continued, “The difficulty facing housing may be too-high price increases. At the currently lower pace of home price increases, prices are rising almost twice as fast as inflation: in the last 12 months, the S&P Corelogic Case-Shiller National Index is up 3.7%, double the 1.9% inflation rate. Measured in real, inflation-adjusted terms, home prices today are rising at a 1.8% annual rate. This compares to a 1.2% real annual price increases in housing since 1975.”
Last Thursday, the National Association of Realtors (NAR) reported Pending Home Sales declined by a seasonally adjusted 1.5% in April and were 2% lower than a year ago. The consensus forecast had called for a 0.5% increase. Sales were 2% lower compared with April 2018, the 16th straight month of annual declines. Regionally, only the Midwest saw an increase in April, with a 1.3% rise in sales. Pending sales were down 1.8% in the Northeast, 2.5% lower in the South and 1.8% lower in the West.
Chief NAR economist Lawrence Yun commented “Though the latest monthly figure shows a mild decline in contract signings, mortgage applications and consumer confidence have been steadily rising. Home price appreciation has been the strongest on the lower-end as inventory conditions have been consistently tight on homes priced under $250,000. Price conditions are soft on the upper-end, especially in high tax states like Connecticut, New York and Illinois. It’s inevitable for sales to turn higher in a few months.” At the current sales pace, there is a 3.3-month supply of homes for sale priced under $250,000 nationally, but an 8.9-month supply of homes priced $1 million and above.
Elsewhere, mortgage data from the Mortgage Bankers Association (MBA) showed the number of mortgage applications decreased from the prior week. The MBA reported their overall seasonally adjusted Market Composite Index (application volume) fell 3.3% for the week ended May 24, 2019. The seasonally adjusted Purchase Index decreased 1% from a week prior while the Refinance Index increased 6%. Overall, the refinance portion of mortgage activity increased to 39.7% from 40.5% of total applications from the prior week.
The adjustable-rate mortgage share of activity increased to 6.6% of total applications from 6.8%. According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with a conforming loan balance was unchanged at 4.33% with points decreasing to 0.42 from 0.43 for 80 percent loan-to-value ratio (LTV) loans.
For the week, the FNMA 4.0% coupon bond gained 36.0 basis points to close at $103.219 while the 10-year Treasury yield decreased 17.00 basis points to end at 2.133%. The Dow Jones Industrial Average plunged 770.65 points to close at 24,815.04. The NASDAQ Composite Index fell 183.86 points to close at 7,453.15. The S&P 500 Index lost 74.00 points to close at 2,752.06. Year to date (2019) on a total return basis, the Dow Jones Industrial Average has added 6.38%, the NASDAQ Composite Index has gained 12.33%, and the S&P 500 Index has advanced 9.78%.
This past week, the national average 30-year mortgage rate fell to 3.94% from 4.05%; the 15-year mortgage rate decreased to 3.75% from 3.88%; the 5/1 ARM mortgage rate decreased to 3.99% from 4.03%; and the FHA 30-year rate declined to 3.75% from 4.00%. Jumbo 30-year rates dropped to 3.90% from 4.00%.
Economic Calendar – for the Week of June 3, 2019
Economic reports having the greatest potential impact on the financial markets are highlighted in bold.
| Date | Time ET | Event /Report /Statistic | For | Market Expects | Prior |
| Jun 03 | 10:00 | ISM Manufacturing Index | May | 52.6 | 52.8 |
| Jun 03 | 10:00 | Construction Spending | Apr | 0.4% | -0.9% |
| Jun 04 | 10:00 | Factory Orders | Apr | -0.9% | 1.9% |
| Jun 05 | 07:00 | MBA Mortgage Index | 06/01 | NA | -3.3% |
| Jun 05 | 08:15 | ADP Employment Change | May | 170,000 | 275,000 |
| Jun 05 | 10:00 | ISM Non-Manufacturing Index | May | 55.4 | 55.5 |
| Jun 05 | 10:30 | EIA Crude Oil Inventories | 06/01 | NA | -0.3M |
| Jun 05 | 14:00 | Fed’s Beige Book | Jun | NA | NA |
| Jun 06 | 08:30 | Initial Claims | 06/01 | 220,000 | 215,000 |
| Jun 06 | 08:30 | Continuing Claims | 05/24 | NA | 1,657K |
| Jun 06 | 08:30 | Trade Balance | Apr | -$51.0B | -$50.0B |
| Jun 06 | 08:30 | Productivity-Rev. | Q1 | 3.4% | 3.6% |
| Jun 06 | 08:30 | Unit Labor Costs – Rev. | Q1 | -0.8% | -0.9% |
| Jun 07 | 08:30 | Nonfarm Payrolls | May | 180,000 | 263,000 |
| Jun 07 | 08:30 | Nonfarm Private Payrolls | May | 170,000 | 236,000 |
| Jun 07 | 08:30 | Avg. Hourly Earnings | May | 0.3% | 0.2% |
| Jun 07 | 08:30 | Unemployment Rate | May | 3.7% | 3.6% |
| Jun 07 | 08:30 | Average Workweek | May | 34.5 | 34.4 |
Mortgage Rate Forecast with Chart – FNMA 30-Year 4.0% Coupon Bond
The FNMA 30-year 4.0% coupon bond ($103.219 +36.0bp) traded within a wider 37.5 basis point range between a weekly intraday low of $102.859 on Wednesday and a weekly intraday high of 103.234 on Friday before closing the week at $103.219 on Friday. Mortgage bonds traded flat on Tuesday and Wednesday before moving higher on Thursday and above nearest technical resistance on Friday following a sharp drop in the stock market on international trade concerns.
Former technical resistance at $103.109 becomes closest support followed by support at the 25-day moving average at $102.739. The next levels of resistance are found at the 38.2% Fibonacci retracement level ($103.379) followed by the 23.6% Fibonacci retracement level ($104.321).
The slow stochastic indicator shows the bond is still trading on a buy signal while extremely “overbought” and susceptible to a reversal lower. Friday’s strong move higher may be followed by a retracement toward the $103.109 level before resumption in any further upward move. The current chart pattern of strong upward momentum could continue this week resulting in slightly lower mortgage rates.