Housing Report Roundup: Refi Candidates at Record High; Lenders’ Profit Outlook Improves; Homebuyers Undeterred by High Prices

Here’s a roundup of recent housing finance market reports, from Black Knight, Fannie Mae and Redfin.

Black Knight: Refi Candidates at Record High

Black Knight, Jacksonville, Fla., said with 30-year fixed mortgage rates at record lows, the number of high-quality refinance candidates is at it largest level ever.

Black Knight said with Freddie Mac last week reporting the average 30-year mortgage interest rate hit a new record low at 2.86%, 19.3 million high quality refinance candidates could significantly lower their rates, representing a record 43 percent of all 30-year mortgage holders.

Black Knight defines “high-quality refinance candidates” as 30-year mortgage-holders with credit scores of 720 or higher, who hold at least 20% equity in their homes and are current on their mortgage payments and who stand to shave at least 0.75% off their first lien rate by refinancing.

Additionally, by removing eligibility criteria, Black Knight said 32.4million 30-year mortgage-holders with rates 0.75% or more above the prevailing rate—three out orf every four homeowners with a 30-year mortgage. The average savings for refinance candidates is $299 per month—an aggregate of $5.8 billion per month if all refinance candidates were to take advantage of the opportunity.

Additionally, Black Knight said more than 7million refi candidates could save at least $300 per month; and nearly 2.5 million could save $500 a month or more.

Fannie Mae: Mortgage Lenders’ Profit Margin Outlook Improves

Fannie Mae, Washington, D.C., said mortgage lenders’ profit margin outlook for the next three months increased even further due to strong consumer demand. The company’s Q3 2020 Mortgage Lender Sentiment Survey said 48% of lenders believe profit margins will increase compared to the prior quarter, building on an already strong profit margin outlook, while 37% believe profits will remain the same and 15% believe profits will decrease.

The survey said reported consumer demand remained strong in the third quarter across all loan types, and in many cases neared or reached new highs. Lenders reporting purchase mortgage demand growth for both the prior three months and the next three months rose significantly from last quarter across all loan types (i.e., GSE-eligible, non-GSE-eligible, and government) and is back on par with the same time last year. Similarly, according to lenders, refinance mortgage demand remained extremely strong in the third quarter across all loan types on both a look-back and look-forward basis. On net, lenders also reported a further tightening of credit standards over the prior three months and expect them to remain largely the same over the next three months.

“This quarter’s MLSS results align with the strong housing recovery amid the larger economic downturn due to COVID-19,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “Lenders’ reported purchase mortgage demand for the prior three months across all loan types have returned from sharp drops to the levels seen last year for the same quarter. Purchase demand growth expectations for the next three months reached the highest third-quarter readings since survey inception. For the third consecutive quarter, lenders’ profitability outlook has remained a strong positive. Pent-up consumer demand, continued low mortgage rates, and favorable mortgage spreads helped drive lender profitability.”

The survey reported mortgage spreads remain elevated, consistent with mortgage lenders’ profitability outlook. The average primary mortgage spreads (FRM 30 contract rate versus 10-year Treasury) came in at 229 basis points in August, above the long-run average of 170 basis points.

The survey also noted lenders on net continued to report a tightening of credit standards for the prior three months, with the majority expecting credit standards to stay about the same for the next three months.

Redfin: Buyers Undeterred as Home Prices Shoot Up; iBuying Drops Off

Redfin, Seattle, said the U.S. median home sale price increased 13% from 2019 to $319,178—the highest on record and the largest since October 2013.

For the four-week period ending September 6, Redfin reported pending home sales climbed 28% year over year, the largest increase since the four weeks ending August 2, 2015. New listings of homes for sale were up 9% from a year ago—the largest increase since the four weeks ending December 20, 2015.

Redfin said active listings (the number of homes listed for sale at any point during the period) fell 28% from 2019 to a record low. The year-over-year decline has been about the same for the past several months. Nearly half (46.4%) of homes that went under contract had an accepted offer within the first two weeks on the market, the highest level since at least 2012 (as far back as our data on this measure goes).

The report said the average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to 99.3%—a record high and a full percentage point higher than a year earlier.

“Home price growth this high is making the housing market especially difficult for first-time homebuyers right now,” said Redfin chief economist Daryl Fairweather. “Rising prices are just one more reason for people to leave expensive urban neighborhoods behind. The sudden rise of remote work has allowed homebuyers who are priced out of one neighborhood to expand their search to more affordable areas. In turn, they are pushing up home prices in those relatively affordable areas, causing more people to look to even more affordable areas, and so on. Price growth may slow in 2021, but even if it does, high prices are going to continue to make affordability a concern for buyers.”

The report can be accessed at https://www.redfin.com/blog/home-prices-up-13-percent.

In a separate report, Redfin said the nation’s top iBuyers bought just 880 homes in the second quarter, or 0.1% of homes that sold across more than 400 U.S. metros, down 88% from 7,410 homes, or 0.6% market share, a year earlier to the smallest number of properties purchased by iBuyers since first quarter 2017.

All of the major iBuyers, including RedfinNow, Opendoor, Zillow and Offerpad, suspended purchases at the beginning of the coronavirus pandemic and began to slowly reopen in May and June as the housing market began to recover. In dollar terms, iBuyers spent just $195 million buying homes in the second quarter, compared with $1.6 billion a year earlier.

However, Jason Aleem, vice president of RedfinNow, said he has seen a major uptick in demand over the last few months. “The pandemic has brought a lot of folks into the market who need liquidity, certainty and a safe and contactless way to sell their home,” he said.

Haleem noted one trend that has ramped up since the pandemic began is the iBuyer bidding war. “Homeowners are seeking out offers from multiple iBuyers so they can feel confident they are getting the best possible price in this blazing hot market without a bunch of foot traffic coming through. As a result, iBuyers are making more competitive offers.”

The report said iBuyer-owned homes found a buyer after being listed on the market for a median of 13 days, down from 40 days a year earlier. A typical, non-iBuyer home spent 37 days on the market, unchanged from a year prior. iBuyers bought homes for a median of $241,100 in the second quarter, down from $250,000 a year earlier. In all but one iBuyer market where sale price data is available, iBuyers purchased homes for less than the metro-area median.

The report is available at: https://www.redfin.com/blog/ibuyer-real-estate-q2-2020.