November 15, 2020 - 10:15 am
Last week the average interest rate on a 30-year fixed-rate mortgage fell to the lowest level in nearly 50 years. Today’s rates are, on average, more than a full percentage point lower than they have been over the past five years.
That’s great news for existing homeowners looking to refinance, but it has created a challenge for buyers looking to purchase a home. Both on a national level, and on a local level here in Las Vegas, the inventory of available homes to purchase has declined dramatically compared with a year ago.
It has been said that for every action, there is an opposite and equal reaction. That principle can certainly be applied to our current interest rate environment. While on the face of it you could certainly say that low mortgage interest rates are a good thing, a deeper look into why rates are so low presents a different perspective.
Chris Biaggi, chairman and CEO of local Las Vegas-based All Western Mortgage, said: “Historically, it is a bad economy or fear of a bad economy that drives interest rates low. As consumers refinance into lower interest rates, they benefit by reducing payments, and by consolidating debt, this puts more money into their pockets each month. Typically, this will lead to more spending and bring a much-needed boost to businesses, both large and small in Nevada. But low interest rates are not sustainable over a long period of time, and eventually they will rise again. How much and how fast will depend on the economy and how it performs over the next months and years. Overall, lower interest rates and the opportunity to refinance have been a big positive and the one bright spot for homeowners during this very challenging time.”
For most of us, the idea of obtaining a mortgage interest rate below 3 percent with no fees was virtually unimaginable. But here we are, so let’s take a look at how this affects you — the Las Vegas consumer. If you own a home with an interest rate over 4 percent, it probably will benefit you to refinance.
Sydnee Johnson, senior loan officer at All Western Mortgage, is seeing an average rate drop of between 1 percent to 1.50 percent, which is generating an average cost savings of over $300 per month. With the “true hard costs” that are involved in a refinance transaction, it will take you about two years to fully recoup your costs — but the monthly savings start right now.
While the majority of refinance loans are “no-cash-out rate reduction” refinance loans, Johnson said that about 20 percent of her borrowers are doing “debt consolidation refinance” loans.
If you have sufficient equity in your home, rolling in high-interest rate consumer and revolving debt, such as credit cards or auto loans, can make absolute sense. A consolidation refinance loan could possibly save your family $1,000 a month in payments.
One of Johnson’s clients recently wrote her: “Please know that you and your team rescued us from a loan that was choking us. We were sacrificing so much for so many years, and now we feel we can breathe again. Now, we can accomplish things that we have been putting off, like doctor and dentist appointments. We are so very grateful.”
You might be aware that home sales volume has been up dramatically this year, both here in Las Vegas and across the nation. That certainly seems odd based upon the fact that we are facing a global pandemic. Cynically, the surge in home purchase activity is being called “boom in the gloom.” How much does this low-interest rate environment play into the home purchase boom?
Nathan White, division president of Summit Homes Nevada, said: “Low-interest rates are likely the driving force behind the surge in homebuying activity. Compared to high rental rates in the valley, owning a home with today’s lower interest rate and lower payment makes owning a home very attractive. Home sales have been very strong for Summit Homes this year. Basically equivalent to a good ‘normal’ spring selling season. The pandemic has resulted in people working and schooling children from their homes. People are at home more than they ever have been in the past. I think people have discovered how important owning a home is to their family’s attitudes and future. This fact, coupled with historically low-interest rates, has made for a very strong sales market.”
By and large, the pandemic housing market has defied all expectations. Both home sales volume and home prices are up substantially as compared to 2019. The “glass half full, glass half empty” saying can certainly be used as we look at our mortgage rates. We know the reason why mortgage rates are so low is because of fear and uncertainty in the health of the worldwide economy. And that our Federal Reserve is pumping $40 billion a month into buying mortgage-backed securities to inject liquidity into the market and to keep rates low.
This too shall pass. And for those of us lucky enough to take advantage of these ultra-low interest rates — that’s a glass half full to me!
Rick Piette is a longtime Las Vegas mortgage expert. He is the regional sales manager for All Western Mortgage.