Mortgage Interest rates remain steady for the week ending 8/22/20

Mortgage interest rates for buying a home on the Palos Verdes Peninsula remained steady near 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

“The resiliency of the housing market coming out of the pandemic lockdown is on full display this week, and we’ll probably see a little bit more of that next week, too. Leading up to the pandemic, low and still-falling mortgage rates had already been driving demand into the housing market, a trend that was keyed by the Fed’s slashing of rates in the latter half of 2019 to try and offset an economy that was flagging due to trade troubles. Home sales had begun to kick higher in the last couple of months of the year, and helped by a warm winter, the spring housing season for both existing and new homes seemed to be getting an early start in 2020.

Then came the coronavirus outbreak, and the hard-stop of economic activity. Over a span of a few months, sales of new homes dropped more than 25%, and sales of existing homes slumped by about 32% as folks were concerned about venturing out to see homes and sellers were reluctant to let folks wander in their houses. Uncertainty over jobs and incomes and a rough period in the stock market and more was likely to blame for the drop in new home sales, but regardless of the reasons, sales pulled back.

Over this time, the demand for housing became pent-up, and perhaps even enhanced somewhat by mortgage rates sliding to new record low levels on several occasions. As we’ve come to understand to a greater degree, the COVID-19 shutdown and economic interruptions have hurt folks of moderate means to a greater degree (and still are), but the reality is that relatively few of this most affected group were likely to be homebuyers in the near term. As such, their inability to engage the market hasn’t had much of a damping effect on sales, at least so far.

The resiliency of the housing market coming out of the pandemic lockdown is on full display this week, and we’ll probably see a little bit more of that next week, too. Leading up to the pandemic, low and still-falling mortgage rates had already been driving demand into the housing market, a trend that was keyed by the Fed’s slashing of rates in the latter half of 2019 to try and offset an economy that was flagging due to trade troubles. Home sales had begun to kick higher in the last couple of months of the year, and helped by a warm winter, the spring housing season for both existing and new homes seemed to be getting an early start in 2020.

Then came the coronavirus outbreak, and the hard-stop of economic activity. Over a span of a few months, sales of new homes dropped more than 25%, and sales of existing homes slumped by about 32% as folks were concerned about venturing out to see homes and sellers were reluctant to let folks wander in their houses. Uncertainty over jobs and incomes and a rough period in the stock market and more was likely to blame for the drop in new home sales, but regardless of the reasons, sales pulled back.

Over this time, the demand for housing became pent-up, and perhaps even enhanced somewhat by mortgage rates sliding to new record low levels on several occasions. As we’ve come to understand to a greater degree, the COVID-19 shutdown and economic interruptions have hurt folks of moderate means to a greater degree (and still are), but the reality is that relatively few of this most affected group were likely to be homebuyers in the near term. As such, their inability to engage the market hasn’t had much of a damping effect on sales, at least so far.

Housing has certainly done its best to try to lift the economy out of the COVID doldrums; resurgent homebuilding has wide-ranging beneficial effects, and even refinancing creates income and spending streams that serve to prop up growth. With still-considerable economic headwinds evident and the pent-up demand that has powered the market higher unlikely to last for long, future activity may not be able to keep up the pace of this summer, and a slower market (and economy) would result. For now, we still have plenty of pieces in place to keep the ball rolling for another month or two, but after that, new demand will need to form more normally, and that requires an economy firing on all cylinders, which is not a sure thing at this point.

Still, that’s for tomorrow; meanwhile, we’ll enjoy the now. Mortgage rates have firmed up a little over the last couple of weeks, partly due to a realization of markets risks underscored by that new refi fee, and also likely as an ancillary effect of that fee being imposed so abruptly that it means lenders may have to cover some or all of that cost for loans in the works. Recouping those costs means passing them onto other customers, and that means increases in risk premiums and higher rates for everybody. Aside from that modest upward pressure, the underlying instruments that influence fixed-rate mortgages are rather flat of late, so we’ll probably only see a basis point or two move in the average conforming 30-year FRM as reported by Freddie Mac next Thursday morning.”

The following are interest rate quotes from Allen Bond of Wells Fargo:

Conforming

Jumbo

Rates shown are for purchase loans only. This information is accurate as of 8/20/2020 12:50:54 PM (CT) and is subject to change without notice.