The drop in mortgage rates below 4 percent has cut into Debra Shultz’s sleep. The New York City banker is busier than she’s been in months, working with three dozen homeowners eager to lower their payments.
Shultz helped a Greenwich Village homeowner on Wednesday lock in a 3.63 percent interest rate for a 30-year fixed jumbo mortgage of more than $900,000. An hour later, the rate jumped to 3.75 percent. One lender changed its rate sheet six times that day.
“It just went crazy,” said Shultz, a senior vice president of mortgage lending at Guaranteed Rate in New York. “I sent out a blast e-mail to 1,600 clients and had 30 responses right away.”
Mortgage rates are following a slide in 10-year Treasury yields as weaker-than-expected economic data from Germany to China combine with concern about the Ebola virus, sparking demand for safe investments. The average rate for a 30-year fixed mortgage dropped to 3.97 percent, the lowest since June 2013, Freddie Mac said. Borrowing costs spiked in September before dropping for the last four weeks, giving owners a new opportunity to refinance.
“This is bizarro world,” said Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Virginia. “Usually we associate lower interest rates with lower volatility. Now you’re seeing the opposite.”
A gauge of U.S. mortgage refinancing jumped 10.6 percent last week, the most since early June, the Mortgage Bankers Association said Wednesday. The share of home-loan applicants seeking to refinance climbed to 58.9 percent, the highest since mid-February, from 56.4 percent, the group said. In December of 2012, after the 30-year average rate hit a record low of 3.31 percent in November, borrowers wanting to refinance accounted for 84 percent of applications.
At Quicken Loans Inc., the fourth-biggest U.S. mortgage lender, application volumes in the past week doubled from a week earlier, Chief Economist Bob Walters said. While Quicken’s levels are approaching those of 2012 and 2013, other lenders will struggle to keep up with demand after cutting jobs because of depressed lending, he said.
“It won’t be long before most lenders will be full up,” Walters said. “Closing times will be longer and mortgage companies will raise rates.”
JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. all posted mortgage lending gains in the third quarter from the prior period. Refinancing by homeowners, who took advantage of the lowest interest rates of the year, drove the industry’s growth, according to an MBA estimate. Banks’ lending remains far below last year’s levels as they struggle to increase home-purchase mortgages after imposing tough credit requirements.
Housing sales, which have declined from a year ago, won’t get much of a boost from a short-term drop in rates, said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. It typically takes months for buyers to find properties and close deals, and by then rates likely will have changed.
If rates stay below 4 percent for a full year, it will boost home sales by 5 percent and housing starts by about 10 percent while causing refinancing to double next year, said Mark Zandi, chief economist for Moody’s Analytics.
“The decline in rates, if they stick around for any length of time, is a plus for housing and mortgage markets that will take edge off other restraints on housing demand,” Zandi said.
Rates for 30-year loans began rising from 3.35 percent in May 2013 after the Federal Reserve signaled it would start to unwind its stimulus plan aimed at keeping borrowing costs down.
At the beginning of 2014, with rates at 4.53 percent, housing forecasters projected mortgage rates would continue to rise throughout the year. Instead, rates went down to 4.12 percent by May because of the economic malaise in Europe and political strife worldwide. They remained more or less flat before rising in mid-September to about 4.23 percent. Rates have fallen since then to a 16-month low of 3.97 percent this week.
Forecasters are offering divergent outlooks for the coming quarters. MBA said on Sept. 17 that the average 30-year fixed mortgage rate probably will rise to 4.5 percent in the fourth quarter. Vitner said borrowing costs are likely to continue to fall for weeks, and maybe months, he said.
“The refi boomlet will give a lift to the financial sector,” Vitner said. “Given that this is a seasonally slow period for housing and the mortgage business, it’s well timed.”
Shultz, the banker, has been so busy fielding calls and e-mails from clients that she has had to work late into the night to prepare documents for refinancing.
“I have so many loans to work on right now,” Shultz said.
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