Mortgage rates are a little like flying. (Stay with me on this!) Every mortgage holder has an interest rate linked to his/her home, just as every airline passenger has a fare associated with a seat. In each case you typically don’t know what the people next to you – your neighbors or flight seatmates – are paying. You may have a bargain rate or price – or you may not. That’s why it’s important to shop around at the outset.
Today’s mortgage rates have caught many experts by surprise. My blog post in December projecting this year’s housing trends included one expert’s opinion that rates would rise toward 6% or higher. He and most others turned out to be wrong. Why? As I mentioned in last month’s newsletter, geopolitical and domestic issues – mainly U.S. tensions with China and Iran – pushed investors into a safer haven, government-backed bonds. But now, investors are plowing cash into both stocks and bonds (as of this writing), with the main U.S. stock indices establishing new highs this month.
As investors put money into the bond market, Treasury yields move lower. After briefly dipping below the 2% level, we’re now seeing 10-year notes trade around 2.1%. Many U.S. lenders add roughly two percentage points on top of that yield to reach a typical 30-year mortgage rate. The better your credit, income and assets (or CIA), as well as the larger the down payment, the lower your mortgage rate.
Unlike air passengers – where they pay one fare and they’re done – owners can buy a home at one interest rate and then refinance later. About 5.9 million borrowers in the U.S. could see their rates drop by at least 75 basis points (0.75 percentage point) by refinancing their mortgage, according to Black Knight, a mortgage software and analytics firm. That’s the largest population of eligible borrowers in nearly three years, a rise of about 2 million mortgage holders in the past month alone, with per-month savings now estimated at about $271.
Focusing on rates alone, the timing is right for both buyers and homeowners. According to economists at Freddie Mac, fixed-rate, 30-year mortgages will average about 4.1% nationally through the year and increase to 4.2% in 2020. The U.S. weekly average 30-year fixed rate was 3.75% in early July, territory not seen since November 2016.
Meantime, buyers in the pricey Seattle/King County market can take advantage of the lower rates by theoretically buying a higher-priced property. What was unaffordable last fall when rates were around 5.0% might be within financial reach today thanks to the interest savings and/or lower monthly payments. What a time to own a home!
In June, King County homes (single-family houses and condos) were selling at a median price of $637,675, down 1.9% from a year ago. Seattle homes were now priced at $729,900, off 1.4% from the previous June but up 1.1% from May of this year. Median prices in the Seattle condo market are little changed ($494,990) from the previous month but down 6.2% from a year ago, and they are off 10.5% from June 2018 in pricier downtown/Belltown area ($662,500). Inventories for all homes are fractionally higher in most areas – at 1.8 months’ in King County, 2.1 in Seattle and 4.9 in downtown/Belltown. (The most expensive area? West Bellevue – Hunts Point and Medina – where the median sales price in June was $2.1 million.)
Bottom line: It’s worth looking into refinancing your existing mortgage and (presumably) lock in on a lower rate. It’s also the right time to a buy a home when rates are at lows not seen in nearly three years.
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