Mortgage Rates by the decade!

Home Mortgage Rates by Decade [INFOGRAPHIC]

Home Mortgage Rates by Decade [INFOGRAPHIC] | MyKCM

Some Highlights

  • Mortgage interest rates have dropped considerably over the past year, and compared to what we’ve seen in recent decades, it’s a great time to buy a home.
  • Locking in a low rate today could save you thousands of dollars over the lifetime of your home loan, but these low rates may not last forever.
  • If you’re in a position to buy a home, let’s connect to determine your best move in today’s housing market while interest rates are still in your favor.

What Is Your Prediction?

Will Low Mortgage Rates Continue through 2021?

Will Low Mortgage Rates Continue through 2021? | MyKCM

With mortgage interest rates hitting record lows so many times recently, some are wondering if we’ll see low rates continue throughout 2021, or if they’ll start to rise. Recently, Freddie Mac released their quarterly forecast, noting:

“The average 30-year fixed-rate mortgage hit a record low over a dozen times in 2020 and the low interest rate environment is projected to continue through this year. We expect interest rates to average below 3% through the end of 2021. While this is a modest rise from 2020 averages, the recent vote by the Federal Reserve to keep interest rates anchored near zero should keep rates low.”

As shown in the graph below, Freddie Mac is projecting low rates going forward with a modest rise that’s expected to continue through 2022.Will Low Mortgage Rates Continue through 2021? | MyKCMFreddie Mac isn’t the only authority forecasting low rates with a slight rise. Fannie Mae, The Mortgage Bankers Association (MBA), and the National Association of Realtors (NAR) also anticipate low rates with a small increase as 2021 continues on. Here’s the quarterly breakdown of their projections and how they’re expected to play out over the next year:Will Low Mortgage Rates Continue through 2021? | MyKCMIt’s important to note that, while a small change in interest rates can have a substantial impact on monthly mortgage payments, these rates are still incredibly low compared to where they were just a couple of years ago.

What does this mean for buyers?

Low mortgage rates are creating an outstanding opportunity for current homebuyers to get more for their money while staying within their budget. As the economy gets stronger and we recover from the challenges of 2020, it’s natural for rates to potentially rise in response to a healthier economy. Mark Fleming, Chief Economist at First Americanreminds us:

Rising interest rates reduce house-buying power and affordability, but are often a sign of a strong economy, which increases home buyer demand. By any historic standard, today’s mortgage rates remain historically low and will continue to boost house-buying power and keep purchase demand robust.”

With low rates fueling activity among hopeful buyers, there are a lot of people who are highly motivated and looking for homes to purchase right now. In this environment, it can be challenging to find a home to buy, so a local real estate agent will be key to your success if you’re thinking of buying too. Working with a trusted real estate professional to navigate the process while rates are in your favor might be the best move you can make.

Bottom Line

If you’re ready to buy a home, it may be wise to make your move before mortgage rates begin to rise. Let’s connect to discuss how today’s low rates can create more opportunities for you this year.

6.48 Million households have entered a forbearance plan as a result of financial concerns

What Happens When Homeowners Leave Their Forbearance Plans?

What Happens When Homeowners Leave Their Forbearance Plans? | MyKCM

According to the latest report from Black Knight, Inc., a well-respected provider of data and analytics for mortgage companies, 6.48 million households have entered a forbearance plan as a result of financial concerns brought on by the COVID-19 pandemic. Here’s where these homeowners stand right now:

  • 2,543,000 (39%) are current on their payments and have left the program
  • 625,000 (9%) have paid off their mortgages
  • 434,000 (7%) have negotiated a repayment plan and have left the program
  • 2,254,000 (35%) have extended their original forbearance plan
  • 512,000 (8%) are still in their original forbearance plan
  • 116,000 (2%) have left the program and are still behind on payments

This shows that of the almost 3.72 million homeowners who have left the program, only 116,000 (2%) exited while they were still behind on their payments. There are still 2.77 million borrowers in a forbearance program. No one knows for sure how many of those will become foreclosures. There are, however, three major reasons why most experts believe there will not be a tsunami of foreclosures as we saw during the housing crash over a decade ago:

  1. Almost 30% of borrowers in forbearance are still current on their mortgage payments.
  2. Banks likely don’t want to repeat the mistakes of 2008-2012 when they put large numbers of foreclosures on their books. This time, many will instead negotiate a modification plan with the borrower, which will enable households to maintain ownership of the home.
  3. With the significant equity homeowners have today, many will be able to sell instead of going into foreclosure.

Will there be foreclosures coming to the market? Yes. There are hundreds of thousands of foreclosures in this country each year. People experience economic hardships, and in some cases, are not able to meet their mortgage obligations.

Here’s the breakdown of new foreclosures over the last three years, prior to the pandemic:

  • 2017: 314,220
  • 2018: 279,040
  • 2019: 277,520

Through the first three quarters of 2020 (the latest data available), there were only 114,780 new foreclosures. If 10% of those currently in forbearance go to foreclosure, 275,000 foreclosures would be added to the market in 2021. That would be an average year as the numbers above show.

What happens if the number is more than 10%?

If we do experience a higher foreclosure rate from those in forbearance, most experts believe the current housing market will easily absorb the excess inventory. We entered 2020 with 1,210,000 single-family homes available for purchase. At the time, that was low and problematic. The market was experiencing high buyer demand, and we needed more houses to meet that demand. We’re now entering 2021 with 320,000 fewer homes for sale, while buyer demand remains extremely strong. This means the housing market has the capacity to soak up a lot of inventory.

Bottom Line

There will be more foreclosures entering the market later this year, especially compared to the record-low numbers in 2020. However, the market will be able to handle the increase as buyer demand remains strong.

Should you Wait for Lower Mortgage Rates? Good Question!!

Should I Wait for Lower Mortgage Interest Rates?

Should I Wait for Lower Mortgage Interest Rates? | MyKCM

Historically low mortgage rates are a big motivator for homebuyers right now. In 2020 alone, rates hit new record-lows 16 times, and the trend continued into the early part of this year. Many hopeful homebuyers are now wondering if they should put their plans on hold and wait for the lowest rates imaginable. However, the reality is, acting sooner rather than later may be the actual win if you’re ready to buy a home.

According to Greg McBride, Chief Financial Analyst for Bankrate:

“As vaccines become more widely available and a return to normal starts to come into view, we’ll see mortgage rates bounce off the record lows.”

While only a slight increase in mortgage rates is projected for 2021, some experts believe they will start to rise. Over the past week, for example, the average mortgage rate ticked up slightly, reaching 2.79%. This is still incredibly low compared to the trends we’ve seen over time. According to Freddie Mac:

“Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result.”

Here’s why.

As mortgage rates rise, the increase impacts the overall cost of purchasing a home. The higher the rate, the higher your monthly mortgage payment, especially as home prices rise too. Sam Khater, Chief Economist at Freddie Macsays:

“The forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season.”

What does this mean for buyers?

Right now, the inventory of houses for sale is also at a historic low, making it more challenging than normal to find a home to buy in many areas. As more buyers hit the market in the typically busy spring buying season, it may become even harder to find a home in the coming months. With this in mind, Len Keifer, Deputy Chief Economist for Freddie Macrecommends taking advantage of both low mortgage rates and the opportunity to buy:

“If you’ve found a home that fits your needs at a price you can afford, it might be better to act now rather than wait for future rate declines that may never come and a future that likely holds very tight inventory.”

Bottom Line

While today’s low mortgage rates provide great opportunities for homebuyers, we may not see them stick around forever. If you’re ready to buy a home, let’s connect so you can take advantage of what today’s market has to offer.

Why Today’s Options Will Save Homeowners from Foreclosure

Why Today’s Options Will Save Homeowners from Foreclosure | MyKCM

Many housing experts originally voiced concern that the mortgage forbearance program (which allows families impacted financially by COVID to delay mortgage payments to a later date) could lead to an increase in foreclosures when forbearances end.

Some originally forecasted that up to 30% of homeowners would choose to enter forbearance. Less than 10% actually did, and that percentage has been dropping steadily. Black Knight recently reported that the national forbearance rate has decreased to 5.6%, with active forbearances falling below 3 million for the first time since mid-April.

Many of those still in forbearance are actually making timely payments. Christopher Maloney of Bloomberg Wealth recently explained:

“Almost one quarter of all homeowners who have demanded forbearance are still current on their mortgages…according to the latest MBA data.”

However, since over two million homeowners are still in forbearance, some experts are concerned that this might lead to another wave of foreclosures like we saw a little over a decade ago during the Great Recession. Here is why this time is different.

There Will Be Very Few Strategic Defaults

During the housing crash twelve years ago, many homeowners owned a house that was worth less than the mortgage they had on that home (called negative equity or being underwater). Many decided they would just stop making their payments and walk away from the house, which then resulted in the bank foreclosing on the property. These foreclosures were known as strategic defaults. Today, the vast majority of homeowners have significant equity in their homes. This dramatically decreases the possibility of strategic defaults.

Aspen Grove Solutions, a business consulting firm, recently addressed the issue in a study titled Creating Positive Forbearance Outcomes:

“Unlike in 2008, strategic defaults have not emerged as a serious problem and seems unlikely to emerge given stronger expectations for property price increases, a record low inventory of homes, and stable residential underwriting standards leading up to the crisis which has reduced the number of owners who are underwater.”

There Are Other Options That Were Not Available the Last Time

A decade ago, there wasn’t a forbearance option, and most banks did not put in other programs, like modifications and short sales, until very late in the crisis.

Today, homeowners have several options because banks understand the three fundamental differences in today’s real estate market as compared to 2008:

1. Most homeowners have substantial equity in their homes.

2. The real estate market has a shortage of listings for sale. In 2008, homes for sale flooded the market.

3. Prices are appreciating. In 2008, prices were depreciating dramatically.

These differences allow banks to feel comfortable giving options to homeowners when exiting forbearance. Aspen Grove broke down some of these options in the study mentioned above:

  • Refinance Repay: Capitalize forbearance amount – For borrowers who have strong credit, have good or improved equity in their homes, possibly had a higher interest rate on their original loan, have steady employment/no significant wage loss, and income.
  • Repayment Plan: Pay it back in higher monthly payments – For people who cannot reinstate using savings, but have increased monthly income, and do not want to use a deferral program.
  • Deferral ProgramShift payments to the end of the loan term – For borrowers who lost income temporarily and regained most or all of their income but are not in a position to refinance due to credit score, home equity, low total loan value relative to closing costs, or simple apathy.
  • ModificationFlex modification or other mod – For households that permanently lost 20% to 30% of their income, but not all of their income, and want to remain in their home.

Each one of these programs enables the homeowner to remain in the home.

What about Those Who Don’t Qualify for These Programs?

Homeowners who can’t catch up on past payments and don’t qualify for the programs mentioned have two options: sell the house or let it go to foreclosure. Some experts think most will be forced to take the foreclosure route. However, an examination of the data shows that probably won’t be the case.

A decade ago, homeowners had very little equity in their homes. Therefore, selling was not an option unless they were willing to tap into limited savings to cover the cost of selling, like real estate commission, closing costs, and attorney fees. Without any other option, many just decided to stay in the house until they were served a foreclosure notice.

As mentioned above, today is different. Most homeowners now have a large amount of equity in their homes. They will most likely decide to sell their home and take that equity rather than wait for the bank to foreclose.

In a separate reportBlack Knight highlighted this issue:

“In total, an estimated 172K loans are in forbearance, have missed three or more payments under their plans and have less than 10% equity in their homes.”

In other words, of the millions currently in a forbearance plan, there are few that likely will become a foreclosure.

Bottom Line

Some analysts are talking about future foreclosures reaching 500,000 to over 1 million. With the options today’s homeowners have, that doesn’t seem likely.

More affordable than you think.

Homes Are More Affordable Right Now Than They Have Been in Years

Homes Are More Affordable Right Now Than They Have Been in Years | MyKCM

Today, home prices are appreciating. When we hear prices are going up, it’s normal to think a home will cost more as the trend continues. The way the housing market is positioned today, however, low mortgage rates are actually making homes more affordable, even as prices rise. Here’s why.

According to the Mortgage Monitor Report from Black Knight:

“While home prices have risen for 97 consecutive months, July’s record-low mortgage rates have made purchasing the average-priced home the most affordable it’s been since 2016.

How is that possible?

Black Knight continues to explain:

“As of mid-July, it required 19.8% of the median monthly income to make the mortgage payment on the average-priced home purchase, assuming a 20% down payment and a 30-year mortgage. That was more than 5% below the average of 25% from 1995-2003.

This means it currently requires a $1,071 monthly payment to purchase the average-priced home, which is down 6% from the same time last year, despite the average home increasing in value by more than $12,000 during that same time period.

In fact, buying power is now up 10% year-over-year, meaning the average home buyer can afford nearly $32,000 more home than they could at the same time last year, while keeping their monthly payment the same.”

This is great news for the many buyers who were unable to purchase last year, or earlier in the spring due to the slowdown from the pandemic. By waiting a little longer, they can now afford 10% more home than they could have a year ago while keeping their monthly mortgage payment unchanged.

With mortgage rates hitting all-time lows eight times this year, it’s now less expensive to borrow money, making homes significantly more affordable over the lifetime of your loan. Mark Fleming, Chief Economist at First American, shares what low mortgage rates mean for affordability:

“In July, house-buying power got a big boost as the 30-year, fixed mortgage rate made history by moving below three percent. That drop in the mortgage rate from 3.23 percent in May to 2.98 percent in July increased house-buying power by nearly $15,000.”

The map below shows the last time homes were this affordable by state:Homes Are More Affordable Right Now Than They Have Been in Years | MyKCMIn six states – Arkansas, Iowa, Kentucky, Louisiana, Maryland, and West Virginia – homes have not been this affordable in more than 25 years.

Bottom Line

If you’re thinking of making a move, now is a great time to take advantage of the affordability that comes with such low mortgage rates. Whether you’re thinking of purchasing your first home or moving into a new one and securing a significantly lower mortgage rate than you may have on your current house, let’s connect today to determine your next steps in the process.