Home mortgage rates decline to record lows for FHA conforming loans

Mortgage interest rates for buying a home on the Palos Verdes Peninsula declined to new record lows this week for conforming loans but remain higher to jumbo loans . The following are excerpts from the newsletter on interest rates published by HSH Associates :

“By all indications, the housing market weathered the COVID-19 shutdowns fairly well. If not for the hard economic stop and now continuing disruption, we were probably looking at the best spring housing market in a while, as mortgage rates were already near historic lows and the record-long string of job and income gains were helping to create plenty of demand. That said, with the disruption to incomes and more, a number of folks will not be participating in the housing market for a while at least. However, there seems to be plenty of pent-up and delayed demand for homes to buy, as even with still-rising home prices, the repeated call of “record low mortgage rates” continues to bring potential buyers into the market. What’s less clear is if that demand will be met by supply, as inventories of existing homes for sale remain razor thin.

Rising mortgage applications certainly indicate plenty of demand, but what’s not clear is the success rate of applicants — that is, how many actually make it through to an actual closing. Given somewhat more rigid underwriting standards in place in recent weeks due to mortgage market disruption, economic turmoil and lenders looking to meter inbound demand, this number is likely considerably higher than it had been just a few months ago. As well, we don’t know how many of these applicants that are turned down at one outlet are reapplying at another lender in hopes of finding a greater level of accommodation, so applications for mortgage credit might also appear somewhat higher than they actually are. One borrower, multiple applications.

Mortgage rates set a new record low this week, something we wrote about expecting just a few weeks ago. Time was when new record lows would have seen 40-point headlines and lots of discussion in the media and beyond, but we have set new records a number of times in just the last 10 years, so that story is a bit old, as it were. As well, most consumers also know that a new record doesn’t necessarily mean a meaningful change in rates; after all, it’s not as though rates were 4% yesterday and 3% today. While of course a milestone, the difference between the record of a few weeks ago and the one set this week is measured in hundredths of a percentage point — two, in fact — a technical record, but not a meaningful one.

In addition, the record applies to just one facet of the mortgage market — a conforming fixed-rate loan made to an excellent credit quality borrower with a significant downpayment, full income and asset documentation and more. For other borrowers with lesser or differing credentials, rates may or may not be at record lows, and for some, credit simply isn’t available regardless of price. For these borrowers, 40-point headlines of “record low mortgage rates” can be pretty meaningless. Still, benchmarks are what they are and what we have to go by, so the reference still has value, even if in reality such new records are being set because the economic climate is quite awful and inflation benign.

The downdraft in mortgage rates from last week to this appears to have paused, at least for the moment. After barely catching up from a refinance blast pre-shutdown, activity in mortgages has been steady to now increasing again, and the economic picture is mixed to a bit better of late. That suggests a flat mortgage rate environment as we head into next week, and we think that the average offered rate for a conforming 30-year FRM as reported by Freddie Mac next Thursday morning will be mostly steady, perhaps increasing by a basis point or two if there is any movement.

The following are interest rate quotes from John Alvin of American California Financial Services and Allen Bond of Wells Fargo Home Mortgage:

John Alvin:

Wells Farg0:

Conforming

Jumbo

Rates shown are for purchase loans only. This information is accurate as of 6/20/2020 9:37:23 PM (CT) and is subject to change without notice.