In nearly 30 years in the business, Sean Hulsey has rarely seen a mortgage industry as opportunistic for would-be homeowners and those looking to refinance.
“Even though we’re in this pandemic, it’s a great market right now,” said Hulsey, head of Wells Fargo’s retail mortgage operations in Las Vegas. “The last time we had opportunities like this in the mortgage market, it would probably be about 2003. This is probably the second-largest market I’ve worked in, and I’ve been in the business since 1991.”
Last month, the average rate for a 30-year fixed-rate mortgage dropped to 2.8%, according to a Federal Home Loan Mortgage Corp. survey. That’s well under where rates were a year ago—around 3.75%—and the lowest rate seen since Freddie Mac began conducting surveys nearly 50 years ago.
MarketWatch reports that mortgage rates have dropped to record lows at least eight times since the outset of the pandemic.
Mortgage rates are influenced by a number of factors, but Jon Gedde, chair of the Nevada Mortgage Lenders Association, said there’s one main culprit this time.
“It’s COVID-19 and the uncertainty in the market,” Gedde said. “It really is that simple in this case. In general, market uncertainty leads people to more secure investments. Mortgage-backed securities, specifically the bonds backed by the U.S. government like Freddie Mac, are incredibly safe securities. When more people buy them, demand goes up, so the price of the bonds goes up and the return on the bonds goes down. That drives interest rates down.”
With housing inventory low right now in Southern Nevada—the Las Vegas Realtors trade organization recently called the area’s inventory “well below” the six-month level needed to have a balanced market—it’s a seller’s market.
In August, the price of an existing home in Southern Nevada was just over $337,000, an all-time record for the region.
“Mortgage rates have hit another record low due to declining inflationary pressures, putting many home buyers in the buying mood,” Sam Khater, Freddie Mac’s chief economist, told MarketWatch.
It’s not only those looking to buy a first home or move up to a better home who are taking advantage of the historic rates. Many are looking into refinancing options, Hulsey said.
“We’re seeing a lot of consumers taking maybe 25 years remaining on what was originally a 30-year mortgage, dropping that down to a 20-year or 15-year term, and they’re taking advantage of these rates,” Hulsey said. “They might be paying more on their principal payment each month, but they’re able to pay their home off much faster. A lot of folks are gearing up for retirement this way.”
Brad Watts, a loan originator for FBC Mortgage in Las Vegas, said in mid-October that he was working on a refinance package for a former member of the U.S. Navy that represented the lowest rate he’s seen in his 18-year career. The rate for the loan, through the U.S. Department of Veterans Affairs, came in at 2.25%. Watts’ client, who also has some investment properties, said the deal was likely to save him nearly $2,000 per month.
Not everyone can qualify for a VA loan, and not everyone will save thousands on their monthly payments, but it’s a good time to look at one’s options, said Kendee Ruark, manager of JPMorgan Chase’s home lending outfit in the Las Vegas region.
While there are always unknowns in the marketplace, she said Chase is predicting that the “interest rate market will continue in a low manner through 2021.” Freddie Mac estimates the 30-year mortgage would average 3.2% in 2021.
“There’s an environment now that’s incredibly supportive of homeownership,” Ruark said. “It’s important that people, in this environment, take the time to meet with their banker to walk through their mortgage and, really, do an analysis on their entire financial situation. People can really set themselves up for success as they look to the future.”
That future for many Nevadans includes enduring the economic hardships brought on by the coronavirus, with the jobless rate higher than 20% at the peak of the pandemic. Some put their mortgages into forbearance, which means they’re not obligated to make payments for a certain period of time due to a financial hardship.
Those looking into securing a new mortgage or refinancing would have to exit the forbearance in order to lock in a new deal, Hulsey said.
“Everybody’s situation is a little different,” Hulsey said. “We do see customers who opted into forbearance because the future was unknown, but they continue to make full payments each month. Quite frequently, we hear from people who want to take advantage of these lower rates but don’t realize that there are restrictions. Even if you make payments, if you opted into a forbearance, they’re in a forbearance.”
Gedde said he doesn’t see many similarities between the Great Recession, when housing prices plummeted because of foreclosures brought on by the crisis, and this economic downturn.
“There’s really no comparison, because the market is completely different,” Gedde said. “The primary driver of valuation during the lead-up to the financial crisis was incredibly easy access to financing. A person could state what their income and assets were. That led to a lot of people speculating. We don’t have the same set of criteria now. The credit market is where it should be, and has actually tightened up a bit.”