Lowest Levels Since March 2023
On August 2nd we saw mortgage rates fall to their lowest levels since March of 2023, very close to 6% APR for 30 Year Fixed. My phone and e-mail have been inundated since then and I am in the process of preparing many borrowers for the likely Federal Reserve interest rate cut on September 18th. Unemployment was over 4.3% for the month of July and many of the voting Fed members seem to be on board with a September 18th rate cut to help keep the economy from falling into a recession. The markets are predicting a 100% chance of a Fed rate cut and it remains to be seen whether the Fed cuts it’s target rate, the Fed Funds, by .25% or by .5%.
Fed Waited Too Long
It appears that the Fed may have waited too long to start cutting the Fed Funds, much in the same way they waited too long to increase the Fed Funds post pandemic. Unfortunately, the Fed is not very good at looking forward and seems too preoccupied with looking at past data before changing their policy on interest rates.
Hoping for Rates Below 6% This Year
Once the Fed starts cutting the Fed Funds rate, indicating that they think inflation is under control, look for more demand in the bond market, which will accelerate the drop in mortgage rates. I am hoping we will see 30 Year Fixed mortgage rates fall below 6% APR this year, and maybe into the mid 5’s. We may be at the beginning of an extended run of Fed rate cuts that could see the Fed cut the Fed Funds as much as 1.5% through the end of 2025.
Zero Cost Refinance
Most refinances I will close this year will be for zero closing costs and will set my clients up for one more refinance in 2025 to capture the lower mortgage rate environment. It is still unlikely that fixed mortgage rates will fall to the 2% – 3% APR range that we experience for 22 months during the pandemic. However, by the end of 2025, getting back into the mid 4’s is a distinct possibility.
In November of 2008, when 30 Year Fixed Mortgage rates had fallen to 4.875% APR, those were the lowest mortgage rates many of us had ever experienced and it caused a huge refinance run. With 80% of current mortgage rates below 4% APR, we may not experience that level of surge in refinance activity this round. Even so, 10 million mortgages currently could benefit from the impending rate drop. Unfortunately, the contraction in the mortgage industry during the last 2.5 years will make it difficult to get a refinance closed efficiently and at the promised rate and fee combination.
Home Purchase Activity to Increase
Look for home purchase activity to increase as well and be prepared for another up tick in bidding wars and multiple offers for each listing. As mortgage rates get closer to 5% APR, potential home sellers may be better able to get off their historically low interest rate mortgages and sell to move up, move into a different area, or capture the increased equity that results from higher home prices. Until we see more homeowners willing to part with their low rate mortgages, we will still have an inventory issue. Coupled with more buyers getting back into the market, home prices will continue to rise.
10 Million Mortgages Could Benefit
When the Fed rate cuts start going into effect, I will likely get hit with even more mortgage refinance requests. There are roughly 10 Million borrowers who could benefit from a refinance by just lowering their rate, not to mention refinancing to take cash out of their property’s equity for home improvement and consolidating debt.
Is Your Mortgage Rate Over 6%?
If you have a greater than 6% mortgage rate or need cash out of your equity, please start reaching out to me ASAP so I can go over your numbers and get you in line. After the fallout in the mortgage industry from the last 2.5+ years of increased mortgage rates, banks and mortgage lenders are short staffed and will not be able to handle the sudden increase in mortgage refinance applications.
Get Prepared Early
Getting prepared early will ensure that you are at the front of the line and can close efficiently and with a rate that makes sense for your situation. Keep in mind that the bond market and mortgage rates are fluid and change from day to day. On volatile days, the changes can happen hour to hour. I am ready to get busy again and I have the staff, lenders, and tools to help everyone meet their mortgage needs.
As always, your mortgage guy,
Viral (Vic) Joshi
Home of Real Mortgage Advice®