Super-low mortgage rates: A blessing or ominous sign of next housing downfall?  

Everything happens for a reason.

This week,�some lenders began offering the 15-year fixed-rate
mortgage below the 2% threshold, landing at 1.99%, albeit with more
than 2 points cost. The Freddie Mac average was 2.54% with 0.7 of a
point cost, the third-lowest rate in the three decades Freddie has
been tracking those figures.

How do you feel about all of that? Blissful. Elated.
Euphoric.

You are now in the moment. If you are a homeowner, go ahead and
congratulate yourself. Your property is probably worth much
more.

Unless you are sticking it out for the long haul, sell your
house now. Or, refinance into these rock-bottom rates if you are
sticking it out. Because I’m going to offer you a sanity check on
exactly why mortgage rates are creeping down to zero. And I have
some fodder for you to think about for near-term strategies.

Let’s start with the great stuff we get to celebrate.

Nationwide, home sellers realized a gain of almost $76,000 on
the typical sale (based on median home prices) in the second
quarter of 2020, according to Attom Data Solutions. The typical
profit represented a 36.3% return on investment compared with the
original purchase price. This marked yet another level of raw
profits since the housing market began recovering from the Great
Recession in 2012.

Outstanding!

Can Southern California top that? Oh, yeah. A bunch.

Orange County home sellers crushed it with an average gain of
$251,250, according to Attom. Los Angeles County landed at
$230,000. San Bernardino County was $125,000, and Riverside County
was $120,250.

Incredible!

And, with mortgage rates falling to record lows last week, Black
Knight estimates there are 18.1 million refinance candidates with
good credit and at least 20% equity who can reduce their 30-year
mortgage rates by 0.75%. That’s $6.5 trillion of tappable home
equity. This translates to an average savings of $290 per
month.

Holy smokes!

Now, about that sanity check.

COVID-19 has already killed 143,000 Americans and made almost 4
million sick, according to Johns Hopkins.

Horrific!

It’s killing the economy too.

Even when we miraculously get ahead of this in the form of a
vaccine, the economy will likely be too far gone.

More than anything else, jobs drive the economy, consumer
confidence, housing prices and spur the direction of mortgages
rates. We are in the throes of double-digit national unemployment.
California is hovering around 16%!

Those lofty numbers will do nothing but further slow down and
eventually crush the economy.

A recent Lending Tree survey reports more than 53% of mortgage
borrowers experienced income loss due to the coronavirus
pandemic.

Think about that. More than half.

The six giant U.S. banks cut $35 billion from their profits to
brace for a tsunami of souring loans, according to a recent
Bloomberg article.

Institutional investors (non-lending entities that purchased at
least 10 residential properties) nationwide accounted for 1.4% of
all one-unit home sales in Q2 2020, down from 2.2% in Q1 and the
lowest point since 2000, according to that same Attom Data
Solutions report.

Fitch Rating Service recently issued a report showing California
home prices are overvalued by 5- 9%. CoreLogic sees a
year-over-year California home price decrease of 6.6% from May 2020
to May 2021.

The U.S. share of active mortgages is roughly 53 million, of
which more than 4.1 million (7.8%) are in forbearance, according to
Black Knight.

Unpaid mortgages can quickly reduce national home equity.
Lenders have already advanced $6.9 billion of mortgage and escrow
payments to investors.

Business bankruptcy attorney Richard Golubow of Winthrop,
Golubow, Hollander expects an avalanche of business bankruptcies
after the November presidential election.

“In many cases, the coronavirus crisis exposed deeper systemic
problems, like staggering unstainable debts run up by companies
with unprofitable business models,†said Golubow. “Ultimately,
government intervention in the form of printing and giving away
money will end, and credit lines and bonds will need to be
repaid.â€

You are in the moment.

What are you going to do?

Freddie Mac rate news: The 30-year fixed-rate
averaged 3.01%, up 3 basis points from last week’s record low.
The 15-year fixed rate averaged 2.54%, up 6 basis points from a
record set last week.

The Mortgage Bankers Association reported a 4.1% increase in
loan application volume from one week earlier.

Bottom line: Assuming a borrower gets the
average 30-year fixed rate on a conforming $510,400 loan, he or she
would pay $2,155 a month, down $209 from a year ago.

Eye catcher loan of the week: A 15-year
fixed-rate conventional mortgage at 1.99% with 2.25 points
cost.

Jeff Lazerson is a mortgage broker and adjunct professor at
Saddleback College. He can be reached at 949-334-2424
or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.
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Source: FS – All – Real Estate News 1
Super-low mortgage rates: A blessing or ominous sign of next
housing downfall?