Having repeatedly criticized the Fed’s unwillingness to cut rates during his three years in office, President Trump may eventually come to appreciate the Federal Reserve’s cautious approach to monetary policy as it gives the U.S. central bank some leeway for further cuts as the coronavirus outbreak threatens global economic growth.
After the Fed issued an emergency cut of 50 basis points to the federal funds rate target range last week, Trump immediately called for “more easing and cutting”, repeating his claim that the U.S. is “not playing on a level field” with respect to other countries’ low-interest rate policies.
Following the financial crisis and the subsequent recovery, the Fed started tightening again in December 2015, gradually raising the target range for the federal funds rate from 0.00-0.25 percent to 2.25-2.50 percent by December 2018. Other central banks, most notably the ECB, have kept interest rates at historically low rates and are now scrambling for options to bolster their economies against the impact of the coronavirus outbreak.
Lenders’ Profit Margin Outlook Also Hits High on Strong Consumer Demand
Washington, D.C. – March 12, 2020 (PRNewswire) Mortgage lenders’ profit margin outlook for the next three months reached a new survey high based on data collected in the first half of February, according to Fannie Mae’s (OTCQB: FNMA) Q1 2020 Mortgage Lender Sentiment Survey®. This quarter, 51% of lenders believe profit margins will increase compared to the prior quarter, while 44% believe profits will remain the same and 4% believe profits will decrease. The increased optimism supplements prior quarter MLSS results revealing already-strong lender expectations of profitability. Strong consumer demand for both purchase and refinance mortgages continued to drive lenders’ expectations of increased profitability, with operational efficiency cited by lenders as the second most common reason for the optimistic outlook.
“The mortgage industry has had a strong start in 2020, consistent with our forecast and the February Home Purchase Sentiment Index® released on Monday,” said Fannie Mae Senior Vice President and Chief Economist Doug Duncan. “Lenders’ expectations of consumer demand for purchase and refinance mortgages hit survey highs this quarter, with many lenders pointing to favorable interest rates as the engine driving the demand. The first quarter survey data, which were collected during the first two weeks of February, do not reflect the potential impact of the decline in the 10-year Treasury rate seen in recent weeks. Mortgage spreads have since widened. Given capacity constraints and continued interest rate volatility, we expect mortgage rates to continue to decline and spreads to continue to be wider throughout 2020.”
“Past experience from 2012 and 2016 suggests that mortgage spreads generally take a few months to compress,” continued Duncan. “We anticipate similar rate dynamics this time, depending on the path of the underlying Treasury rate. Although uncertainty around coronavirus may have a dampening effect on housing market sentiment, for now we expect the continued low interest rate environment will help bolster mortgage volume, particularly refinances, as well as lender profitability, consistent with lenders’ expectations.”
Mortgage Lender Sentiment Survey Highlights
Widened Mortgage Spreads Point to Continued Positive Profitability Outlook
Mortgage spreads have widened significantly in the first quarter, consistent with continued optimism in mortgage lenders’ profitability outlook. The average primary mortgage spread (FRM 30 contract rate versus 10-year Treasury) ended February at 216 basis points, well above the long-run average of 168 basis points.
Purchase and Refinance Mortgage Demand Hits Survey Highs
For purchase mortgages, across two of the three loan types (GSE-eligible and government), the net share of lenders reporting demand growth over the prior three months reached the highest readings for any first quarter in the survey’s history, as well as the highest since Q1 2015 for non-GSE-eligible loans. Meanwhile, the net share reporting growth expectations for the next three months remained positive and reached survey highs across all loan types.
For refinance mortgages, the net share of lenders reporting demand growth over the prior three months went down slightly from last quarter’s survey highs but remained very strong. Demand growth expectations on net for the next three months reached new survey highs for GSE-eligible and government loans.
Credit Standards Unchanged
The pace of credit easing remained similar to last quarter. Overall, most lenders reported no major changes in their underwriting credit standards for the prior three months and expected no major changes for the next three months.
About Fannie Mae’s Mortgage Lender Sentiment Survey The Mortgage Lender Sentiment Survey by Fannie Mae polls senior executives of its lending institution customers on a quarterly basis to assess their views and outlook across varied dimensions of the mortgage market. The Fannie Mae first quarter 2020 Mortgage Lender Sentiment Survey was conducted between February 5, 2020 and February 17, 2020 by PSB in coordination with Fannie Mae. For detailed findings from the first quarter 2020 survey, as well as survey questionnaires and other supporting documents, please visit the Fannie Mae Mortgage Lender Sentiment Survey page on fanniemae.com. Also available on the site are special topic analyses, which focus on findings and analyses of important industry topics.
About Fannie Mae Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit: fanniemae.com | Twitter | Facebook | LinkedIn | Instagram | YouTube | Blog
Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic & Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.
A buyer who could afford a $457,000 home in March 2019 could afford a $508,000 home today
In Dallas and Portland, Oregon the share of homes affordable for a $2,500 monthly payment increased, while Phoenix and Las Vegas have fewer affordable homes even with lower rates
Seattle, WA – March 12, 2020 (PRNewswire) (NASDAQ: RDFN) — A dramatic drop in mortgage interest rates, driven by coronavirus fears, has given homebuyers a big boost in purchasing power in recent weeks, according to an analysis from Redfin, (www.redfin.com), the technology-powered real estate brokerage.
At a mortgage interest rate of 3.2%, a homebuyer with a $2,500 monthly mortgage budget could afford a home that is $51,250 more than in March of 2019 when rates were 4.4%. Put another way, a buyer who could accord a $457,000 home in March of last year could afford a $508,000 home today.
“Potential homebuyers now have an extra incentive to buy a home despite all of the economic uncertainty from the coronavirus,” said Redfin chief economist Daryl Fairweather. “And, many current homeowners now have the option to refinance their mortgages and gain some extra spending cash each month. Low interest rates won’t help with direct impacts of the coronavirus on the economy like declines in tourism and service sector spending, but they will mitigate impacts to housing.”
The boost in purchasing power comes at a welcome time for homebuyers who have been facing major inventory crunches and intense bidding wars in many markets. In January, the housing supply fell 11% year over year, and there were fewer homes for sale than any time since January 2013.
Despite there being fewer homes for sale in most markets, the share of homes for sale that were affordable on a $2,500 monthly payment nationally increased 1.9 percentage points from 68.6% between March 4 and March 10, 2019 to 70.5% between March 2 and 8, 2020.
The markets where homebuyers are experiencing the biggest boost in the share of affordable inventory compared to a year ago were Dallas (+6.2 points), Portland, OR (+5.2 points), and Richmond, VA (+4.3 points).
“I just had a buyer who was at the top of his budget lock in a 2.99% mortgage rate and he is ecstatic at how much more flexibility his finances will have thanks to the interest rate drop,” said Portland Redfin agent Meme Loggins. “Another one of my buyers was looking at condos just a few weeks ago because he didn’t think he could afford a single family home, but thanks to the low rates he can now. Homebuyers in every price range are excited, even those looking at homes priced well over $1 million. Unfortunately we are still facing competition on every offer, which leads us to drop contingencies and offer above list price. With the inventory crunch, these low rates are definitely adding to the frenzy.”
Despite the drop in mortgage rates expanding the range of homes that buyers can afford, the share of affordable inventory on a $2,500 payment fell 3.6 points in Phoenix, 3.4 points in Las Vegas and 1 point in Orlando from a year ago.
Share of Homes for Sale Affordable on a $2,500 Monthly Payment
Metro Area
Total Homes for Sale, March 4-10, 2019
Total Homes for Sale, March 2-8, 2020
Share of Homes Affordable on a $2,500 Payment, 2019
Share of Homes Affordable on a $2,500 Payment, 2020
Change in Share of Homes Affordable, 2019 to 2020
Dallas, TX
18,195
15,597
69.6%
75.8%
6.2 pts
Portland, OR
6,335
4,835
49.9%
55.1%
5.2 pts
Richmond, VA
3,244
2,515
76.6%
80.9%
4.3 pts
Milwaukee, WI
4,397
4,276
80.6%
84.8%
4.2 pts
San Diego, CA
7,576
4,889
19.7%
23.7%
4.0 pts
Nashville, TN
11,083
9,983
72.4%
76.1%
3.7 pts
Minneapolis, MN
8,838
8,214
69.6%
73.2%
3.6 pts
New York, NY
35,344
33,128
26.2%
29.7%
3.5 pts
Columbus, OH
5,563
5,206
82.0%
85.4%
3.4 pts
Seattle, WA
6,125
3,841
23.1%
26.2%
3.1 pts
Raleigh, NC
6,742
5,921
74.9%
78.1%
3.1 pts
Louisville, KY
3,057
2,756
84.0%
86.8%
2.9 pts
Chicago, IL
27,981
24,325
71.6%
74.4%
2.8 pts
Denver, CO
7,206
5,498
44.8%
47.7%
2.8 pts
Charlotte, NC
11,513
10,019
77.2%
80.0%
2.8 pts
Miami, FL
20,443
16,650
55.7%
58.4%
2.7 pts
Birmingham, AL
4,751
3,991
84.3%
87.0%
2.7 pts
Houston, TX
28,013
26,255
77.5%
80.0%
2.5 pts
Jacksonville, FL
8,891
7,259
79.2%
81.7%
2.5 pts
Austin, TX
7,426
5,684
69.1%
71.4%
2.3 pts
Hartford, CT
4,882
4,558
86.6%
88.8%
2.2 pts
Providence, RI
5,296
4,433
73.7%
75.9%
2.2 pts
Riverside, CA
18,185
13,082
62.7%
64.8%
2.2 pts
Atlanta, GA
26,234
22,649
76.5%
78.6%
2.1 pts
San Jose, CA
2,325
1,595
2.3%
4.3%
2.0 pts
Kansas City, MO
6,870
4,918
80.7%
82.7%
2.0 pts
Baltimore, MD
10,200
8,640
75.4%
77.2%
1.8 pts
Sacramento, CA
5,060
4,008
49.8%
51.5%
1.7 pts
New Orleans, LA
4,264
4,036
79.9%
81.5%
1.6 pts
San Antonio, TX
9,638
8,671
84.7%
86.2%
1.6 pts
Boston, MA
7,884
7,504
34.0%
35.5%
1.5 pts
Virginia Beach, VA
6,871
5,201
85.3%
86.7%
1.4 pts
Detroit, MI
5,016
4,707
92.1%
93.3%
1.2 pts
Oklahoma City, OK
4,948
4,286
86.0%
87.2%
1.2 pts
St. Louis, MO
8,799
7,167
87.7%
88.8%
1.0 pts
Indianapolis, IN
5,361
4,125
83.2%
84.1%
0.9 pts
Buffalo, NY
1,986
1,585
90.2%
91.0%
0.9 pts
Cincinnati, OH
7,873
6,506
85.8%
86.1%
0.4 pts
Memphis, TN
2,950
2,447
86.2%
86.4%
0.2 pts
Pittsburgh, PA
8,374
7,802
88.0%
87.8%
-0.2 pts
San Francisco, CA
1,686
1,667
1.8%
1.6%
-0.3 pts
Tampa, FL
16,616
11,845
80.5%
80.2%
-0.3 pts
Cleveland, OH
7,960
5,883
89.7%
89.2%
-0.4 pts
Philadelphia, PA
7,033
6,231
81.4%
80.8%
-0.6 pts
Los Angeles, CA
19,772
13,949
19.9%
19.3%
-0.6 pts
Salt Lake City, UT
3,621
1,511
63.4%
62.6%
-0.8 pts
Washington, D.C.
13,321
11,059
55.5%
54.5%
-0.9 pts
Orlando, FL
11,562
8,634
79.7%
78.7%
-1.0 pts
Las Vegas, NV
12,057
8,143
80.8%
77.4%
-3.4 pts
Phoenix, AZ
24,664
15,339
71.5%
67.8%
-3.6 pts
National
883,656
738,139
68.6%
70.5%
1.9 pts
About Redfin Redfin (www.redfin.com) is a technology-powered real estate brokerage, combining its own full-service agents with modern technology to redefine real estate in the consumer’s favor. Founded by software engineers, Redfin has the country’s #1 brokerage website and offers a host of online tools to consumers, including the Redfin Estimate, the automated home-value estimate with the industry’s lowest published error rate for listed homes. Homebuyers and sellers enjoy a full-service, technology-powered experience from Redfin real estate agents, while saving thousands in commissions. Redfin serves more than 90 major metro areas across the U.S. and Canada. The company has helped customers buy or sell homes worth more than $115 billion.
A buyer who could afford a $457,000 home in March 2019 could afford a $508,000 home today
In Dallas and Portland, Oregon the share of homes affordable for a $2,500 monthly payment increased, while Phoenix and Las Vegas have fewer affordable homes even with lower rates
