Falling Rates Creates ‘Tailwind,’ Set Stage for ‘Robust’ Summer

Ellie Mae, Pleasanton, Calif., released its May Originations Insight Report, noting 30-year fixed rates dropped for the fifth straight month to 4.52 percent, down from 4.61 percent in April.

In a separate report, First American Financial Corp., Santa Ana, Calif., said home buyers have been encouraged by unexpectedly lower mortgage rates in 2019, creating a “tailwind” helping to boost demand-and just as importantly, inspiring existing homeowners to sell their homes.

The report said time to close crept up to 42 days for all loans, up from 40 days the month prior. It cited a substantial jump in time to close refinances, rising from 33 days in April to 37 days in May. Time to close purchase loans increased one day from 43 days in April to 44 days in May.

“As the 30-year note rate declines for yet another month, we are seeing purchase and refinance activity on the rise,” said Jonathan Corr, President and CEO of Ellie Mae. “Closing rates remain well over 75 percent and with the Mortgage Bankers Association reporting solid purchase volume and new inventory on the rise, we could be in for a very robust summer home buying season.”

Other May report data:
–The percentage of refinances decreased to 32 percent, while purchases made up 68 percent of total closed loans.

–The percentage of adjustable-rate mortgages decreased to 6.7 percent, down from 6.8 percent in April.

–Closing rates increased to 75.6 percent, up from 74.8 percent in April.

Meanwhile, First American said home buyers have been encouraged by unexpectedly lower mortgage rates in 2019, creating a “tailwind” helping to boost demand-and just as importantly, inspiring existing homeowners to sell their homes.

The company’s quarterly Real Estate Sentiment Index noted, however, that affordability remains a leading obstacle to a stronger housing market.

“In late 2018, many experts believed the housing market in 2019 would behave very similar to the 2018 housing market, characterized by rising demand for homes and limited supply driving house price appreciation, while mortgage rates continued their steady ascent,” said First American Chief Economist Mark Fleming. “Then, December 2018 brought a sudden drop in mortgage rates, a decline which has persisted into the first half of 2019.”

Fifty-seven percent of title agents and real estate professionals surveyed on a bi-annual basis by First American said the unexpectedly low mortgage rates of 2019 have increased home buyer demand in their market. Only 15 percent disagreed. “However, despite lower mortgage rates boosting affordability and stimulating demand, 40 percent of survey respondents indicated that affordability is the primary obstacle to becoming a homeowner,” Fleming said. “This is not surprising as house prices nationally continue to grow, albeit at a slower pace in 2019. The next highest-rated obstacles to becoming a homeowner were the limited inventory of homes they like (30 percent) and down payment (22 percent).”

Fleming said affordability has overtaken lack of supply as the primary obstacle to homeownership. “Title agents and real estate professionals no longer view limited inventory as the primary obstacle to becoming a homeowner,” he said. “The main burden, affordability, confirms the strong sellers’ market conditions from 2018 have continued in many markets in early 2019, as demand outpaces supply and prices continue to rise.”

Fleming noted throughout 2017 and 2018, homeowners faced a “prisoner’s dilemma,” a situation where many homeowners were “imprisoned” in their current home by the fear of not finding a home to buy and the fear of losing their historically low mortgage rate. Now, he said, homeowners may finally be on the verge of escaping that dilemma.

“Not only have concerns over limited supply eased as an obstacle to homeownership, homeowners appear to be more willing to list their homes for sale because they are more confident in finding a home to buy,” Fleming said.

The biennial survey asked what had the greatest influence on the decision by homeowners to list their homes for sale this spring. Thirty-seven percent of title agents and real estate professionals surveyed indicated the supply of alternative homes at the desired price point has increased. They also cited the rate for a new mortgage is competitive with existing mortgage rates (32 percent), creating another crack in the prisoner’s dilemma for homeowners. “Feeling less ‘rate-locked’ has encouraged more homeowners to sell, but many still fear not being able to find something better to buy. To sell, or not to sell. This is the dilemma that existing homeowners face,” Fleming said.

The survey also noted the Millennial generation have been the primary drivers of homeownership growth since 2018. Title agents and real estate professionals surveyed confirmed this data, with 87 percent of respondents indicating first-time home buyers were in the prime home-buying age of 26-35, Fleming said. “This is consistent with our survey findings from the spring of 2018, indicating Millennials remain the primary source of first-time home buyers in 2019. Indeed, we expect Millennials to continue driving the housing market for the foreseeable future.”

Other Real Estate Sentiment Index data:

–Overall, confidence in residential purchase volume growth over the next 12 months decreased 5.0 percent compared with a year ago.

–Confidence in refinance transaction volume growth over the next 12 months increased 72.5 percent compared with a year ago.

–Residential property prices are expected to increase by 3.8 percent over the next 12 months.

–Residential price expectations are 0.4 percent lower than they were one year ago.