I really hate to use this much-overused opening line from A Tale of Two Cities, but it works and I have no shame. “It was the best of times, it was the worst of times” perfectly describes the residential real estate mortgage market we find ourselves in as another by-product of the coronavirus pandemic.
It’s the best of times for individuals who have the ability to purchase homes since the rate for 30-year conventional home mortgages has fallen to the lowest point on record. In a year that already has massive “firsts” here’s another. About two weeks ago the average rate on a 30-year fixed-rate mortgage fell to 2.98%, per Freddie Mac. Rates are at the lowest level in almost 50 years of record keeping. This was the third consecutive week and the seventh time this year that rates on these loans have fallen.
At the beginning of the year before the pandemic hit, the 30-year mortgage was about 3.72%, an extremely good rate. Those of us who remember the early 1980s may remember a high of 18% residential home mortgage rates, an unthinkable number now. In addition, Jumbo loans, those typically larger than $510,400, are around 3.77% in most markets. However, lenders have placed more restrictions on these non-government-backed loans, considered to be risky compared to loans backed by Fannie Mae and Freddie Mac.
So why is this happening and why may it be considered “the worst of times?” Mortgage rates are influenced by the 10-year Treasury note since they compete for the same type of investor interested in stability. Because we’re in a very volatile financial time, investors are looking to protect their assets by buying long-term Treasury bonds, narrowing the gap between bonds and mortgage rates. Therefore, mortgage rates dropping like a rock may not be as great as it sounds for the economic health of the country.
Again, if you have the capacity to purchase at this time, the mortgage rates are fabulous. However, you will still have a rocky road ahead because of the lack of available inventory and increasing asking prices. Although mortgage applications were up 17% in June from a year earlier, according to the Mortgage Bankers Association, prices have also accelerated nationally by 4.7% from last June; at the same time the number of homes on the market fell 27.4% per Realtor.com. Some of this can be offset by the lower mortgage rates allowing buyers to qualify for a larger mortgage.
Overall, historically low interest rates may look like a good thing, but it can actually be an indicator that the real estate and financial markets are functioning at borderline crisis levels. Also, home purchasing is out of the question for many Americans who have lost their jobs and may not return for years. Even those who can afford to purchase may shy away from making a life-changing commitment during such unpredictable times.
In spite of everything I just said, Anna Maria Island is a specialized region and hopefully somewhat immune to big national swings. Real estate decisions always have to be viewed through the lens of the future, and unfortunately right now the immediate future is hard to predict. Best of times, worst of times, certainly difficult times. Stay safe.
