Assessing the health of the real estate market is a lot like analyzing the results of a check-up. You get good news, not-so-great news, and a whole bunch of numbers. In the end, however, the doctor gives you a summative thumbs up or thumbs down. The same could be said for checking out the health of mortgage rates for buyers.
For the current real estate and mortgage markets, here are your results:
- Real estate market: thumbs up.
- Mortgage rates for buyers and homeowners: a big thumbs up.
At first, a positive real estate market coupled with low mortgage rates sounds like a fantasy. But once we dive into the numbers, it all starts to make sense. Here we go.
We’re Seeing Fewer Bidding Wars
One of the more attractive stats for those thinking of buying a home is the national bidding war rates. Released by Redfin, these data points indicate that home buyers are far less likely to get outbid when they make an offer on a home. According to Redfin’s bidding war index, only 11% of offers had competition. In other words, only about 1 in 10 purchases had multiple offers to work with.
Some buyers are understandably shy when deciding how much they want to offer on a home—or even making an offer at all. They fear their cap will get swallowed by a bigger hat being thrown in the ring.
Redfin’s national bidding war percentage dropped to an 8-year low and while this isn’t the best news for sellers, for buyers who’ve been waiting for the right moment to make an offer, this could be their golden moment. A “bye-bye” to bidding battles will mean “buy, buy” for reluctant home buyers.
Limited Inventory = Seller’s Slump
There are two reasons why the frequency of bidding battles may be slumping: lower supply and lack of affordability. A hot seller’s market often leaves a shortage of available homes in its wake. What’s leftover is either unappealing to a number of buyers or just too expensive.
But buyers who are more flexible can have a buffet of homes from which to choose, and those with more purchasing power can flex their wallets with less competition.
Buyers Are Still Optimistic
Regardless of how buyers feel about competition, they feel good about buying homes. Fannie Mae’s “Confidence About Not Losing Job” and “Mortgage Rates Will Go Down” indices hopped up 16 and 24 points, respectively. One of the strongest indicators of buyer appetite is how they feel about their employment.
A feeling of being comfortably cemented in their job makes buyers more willing to make offers and spend more on homes. Simultaneously, the perception that mortgage rates will go down serves to whet hungry buyers’ appetites. A paired spike in both indexes means a jump in buyer confidence heading into the last quarter of 2019.
Extremely Attractive Mortgage Rates, But for How Long?
From a rates perspective, they are really attractive, but no one can be sure when or if things will change. According to recent data, when the steady decline of rates stops, they may quickly rise, leaving those who didn’t lock in a rate or refinance left wishing they had.
The first indicator of a potential rise in rates is stock prices. Major stock indices have a petty, snippy relationship with mortgage rates. When one goes up, the other tries to one-up it. Higher stock prices reflect a more robust economy. A healthy economy breeds higher overall prices, and the prices for loans are not exempt.
Also, when investors are picking up stocks, they tend to drop treasury bonds because investors are no longer cowering away from risk. This raises bond prices, which also increases mortgage rates. Because the government needs to cover the expense of the debt it incurs by selling treasury bonds at higher prices, the mortgage rate, which helps offset the expense, creeps higher, too.
The other is gold. When investors think the economy may tank, they go to gold, and that yanks mortgage rates lower. But right now, gold is dropping in price, so like the economy, mortgage rates could do the opposite: rise.
On the other hand, some experts are predicting a normal correction in the economy, which could mean people move money to more conservative investments. Because mortgage-backed bonds are fairly consistent, there could be an influx of investment dollars to these bonds, in-turn driving rates even lower.
As you can see, it could go either way, which means buyers and homeowners should lock in rates and refinance ASAP.
A Clear Decision for Buyers and Home Owners
A bird’s eye view of the situation reveals a refreshingly unambiguous choice for buyers: lock in a great rate now. Not only are we on the cusp of a deal-laden buyer’s market, but the record-low mortgage rates we’re seeing right now won’t last forever.
If the buyer’s market fully develops, the higher demand for loans could also result in higher mortgage rates. Grabbing a loan now essentially amounts to buying money at a discount. Banks know this, too, and buyers may be able to profit off their greed. If a bank gives a loan now, it can likely sell it to another institution when rates hop up in the future. This is good news for the banks and great news for borrowers.
So whether someone is considering buying or refinancing, now is a great time—while the market is healthy and rates are dancing around all-time lows. Rates are unpredictable, so acting now is the best advice we would give those considering to buy or refinance.