Mortgage rates have stayed at a cool low this summer, and home equity values have maintained an upward trajectory. When rates stay low and values rise, the market creates the perfect conditions for a refinance storm. And indeed, refinances have been hot and will continue to get hotter this year.
Last week, mortgage rates for the 30-year-fixed, 15-year-fixed and 5/1 ARM were 3.75%, 3.18% and 3.47% respectively nearing three-year lows. Mortgage interest rates have not been at these lows since 2016, and those rates were prior to the Fed cutting its benchmark rate by a quarter point on Wednesday.
Plummeting Interest Rates Ignite Explosion Of Refi Volume
Rates for all three of the major mortgage loan types have been steadily declining since the week of November 15th, 2018. As a result, 2019 has seen a refinance boom, starting with a strong resurgence of application activity in Q1. May and June were both flagship months for refinance mortgage loans. In May 2019, rates finally fell below 4%, and subsequently, homeowners rushed to inquire about refinancing in hopes to capture a savings opportunity. By June, refinance loan volume was up 92% from June 2018.
According to Freddie Mac’s June 2019 forecast report, in 2019, the share of refinance volume was expected to increase to 34%. But for the week of July 17th, refinance mortgage loans accounted for 50% of all mortgage application activity, according to the Mortgage Bankers Association (MBA). The decline in mortgage rates this summer has turned up the heat for refinance application volume, and as long as rates remain below 4%, refinance mortgage loan volume has the propensity to maintain it’s hot streak.
Unlike purchase loans, which are affected by varying property prices, inventory and new construction, refinance volume is driven primarily by interest rates. Wednesday marked only the fifth time since 1994 that the Fed transitioned from raising rates to lowering them. And, ultimately, the Fed’s decision to decrease the benchmark rate from 2.25% to 2.00%, should help mortgage interest rates remain low and refinance loan inquiry volume high.
Home Equity Gains More Than $5.6 Trillion In Less Than A Decade
According to the Home Equity Report published by Core Logic, 63% of all U.S. homeowners experienced a 5.6% increase in their home equity from Q1 2018 to Q1 2019. This increase translates to the average U.S. homeowner’s equity rising roughly $6,400. The greatest gains were seen in Miami, Chicago, New York, Las Vegas and Washington D.C.
Also, as home equity rises, the share of households in negative equity with their current mortgages continues to fall. According to Core Logic, in Q1 2019, the share of negative equity households fell 11% year-over-year from 2.5 million homes to 2.2 million of all mortgaged properties. Chief Economist for National Association of Realtors (NAR), Lawrence Yun, said, “Homeowners’ equity in real estate has doubled over the past six years to now nearly $16 trillion.” As a result, as of May, approximately 8.2 million borrowers could benefit from refinancing their mortgages and potentially secure new rates up to 75 basis points below their current rates.
How Can Mortgage Marketers Shine Some Light On Refinance Opportunities?
The key for marketing is to keep the message simple, approachable and consistent. Mortgage marketers need to overcome homeowner refinance concerns and focus on educating prospective clients on the benefits of a refinance loan. But refi marketers should also consider the motivations of different consumer segments. Millennial owners are likely looking for a savings opportunity, while Gen X might be attracted to accessing liquid assets to manage debt or other large purchases.
Homeowners who have experienced volatile markets in the past may be reluctant to make changes to their current mortgage loans due to fears they could lose equity or increase monthly payments. It is important to remind homeowners that refinancing current mortgages does not mean a required transition from fixed-rate to adjustable rate loans. Also, inform homeowners that refinance loans are not the same as reverse mortgages. In the end, it’s essential to make sure prospective refinancers see how refinancing their current mortgages with lower rates and better terms can provide significant monthly savings opportunities, and that they know the time to take action is now.
The Future Is Bright For Refis
If rates stay low and home equity values maintain their growth pattern, refinance loans will continue to be popular among homeowners. The goal for mortgage marketers is to capitalize on the time-sensitive opportunity the market has created and capture the attention of new clients now. Commit to a simple objective this summer: reach out to interested borrowers and present refinancing as an option to lower costs.