Happy Monday everyone. My apologies for the extended absence. Many of you know, but most of you don’t, that we lost my Dad on May 10th after an extended battle with dementia. He was an amazing person and my best friend in the world. To say this took the wind out of my sails would be about as big of an understatement as you could make.Verify my mortgage eligibility (Jan 21st, 2022)
In the 3+ weeks that I’ve been away from the updates, a lot has happened in mortgages and real estate and the world at large. For many reasons this update doesn’t seem that important until I remember that homeowners have more than 40x greater net worth than renters.
And more than 60% of that net worth is stored in home equity. Homeownership is important. It’s actually critical to building wealth and achieving financial independence. Scott and I are committed to going much deeper into why homeownership matters and how to do it right.
We actually named our company BuyWise Mortgage because we are so committed to the concept of homeownership as a foundation pillar of financial independence. We view our role as guides through the buying and borrowing process.Verify my mortgage eligibility (Jan 21st, 2022)
Our company tagline is Buy Wise. Borrow Smart. Build Wealth. Tonight is going to be a quick bullet point tour through some of the important things happening in mortgage and real estate.
I’ll be back Thursday to go deeper on these topics and more. If there’s anything you want to hear about, please let me know and I’ll be happy to cover it.
Welcome back, I am Josh Lewis Broker Owner at BuyWise Mortgage, with the mortgage and real estate update.
We’re gonna stop calling out the Coronavirus Update, because for the most part, those guidelines are behind us, or I should say the rapid changes and everyday turmoil of that is behind us. We’ll have slow changes that come out.Verify my mortgage eligibility (Jan 21st, 2022)
First wanted to start off and talk about the elephant in the room. I’ve been absent from these updates for the last month, and a lot happened during that time, so I apologize for that.
We lost my father about three weeks ago to a long battle with dementia. He was in addition to being probably the best person I know, best person in the world, and not just regarded that by me, but just about everyone that knew him, but also my best friend.
So that, understandably, it kinda knocked the wind out of my sails, and it’s been hard wrapping my mind around sitting here talking about numbers, but I know it’s important. I know it’s important for everyone. We talk in an age of income disparity, wealth disparity. The average homeowner has a net worth 40 times greater.Verify my mortgage eligibility (Jan 21st, 2022)
It’s actually more than 40 times greater than the average renter. The average renter in fact has a net worth of $5,000. I just learned the hard way, that even when your plot is paid for, it costs more than $5,000 just to bury you.
So for the typical renter, they don’t leave enough money for their family to even take care of their final needs. So when I say that homeownership is important and essential, I absolutely believe that and not only do homeowners have a 40 times greater net worth, 60% of that net worth is in homeownership or home equity.
So, buying a home, financing it properly, buying smart, buying wise, borrowing smart, and building wealth over the long haul is essential towards getting to the finish line, and in being able to care for yourself, care for yourself in retirement, leave a legacy and asset for your family. So we’ll get into a lot of that a little bit later. Scott, my business partner and I, Scott Schang are really going deep on building a lot of content of laying that out.Verify my mortgage eligibility (Jan 21st, 2022)
Most of you watching this, a lot of you are real estate professionals, a lot of you are already homeowners, and you already understand that. You know the role that it plays in your net worth and your household wealth.
We’re really talking to the next generation, the millennials that are in their late 20s and their early 30s, are just getting started in life, and may or may not understand the importance of homeownership from a financial perspective, and one of my big pet peeves is we’re in an era here, where everyone wants to take homeownership down to just lowest common denominator, push-button get mortgage.
Contact this person, they’ll write a contract for you, and give you a rebate towards your closing costs. And we are entering a technological era where it’s getting easier to do loans, and those savings do get passed along to borrowers, but for the most part, expertise has been taken out of the equation or devalued in the equation, and nothing can make a bigger impact over the long haul.Verify my mortgage eligibility (Jan 21st, 2022)
So, long way of saying a little bit of a rant here. We’re three minutes in, and just want to talk about why I think this is important, why we do this, and hopefully why you’re watching, and listening, and paying attention. There is a ton of contract to go over. I’m not gonna do that tonight. I just kinda wanted to get back in the saddle.
Thursday night we’re gonna try and go deeper on a number of the updates, and guidelines, and guidance, that’s come out in the last month, talk about just home values, and what’s happening with home values, with home supply, home demand, and what that’s doing to prices for those of you that are in the market. For tonight, we’re gonna talk about primarily refinances.
That’s what everyone is talking about thinking of, looking at doing. There’s over $11 trillion of outstanding mortgage debt in the United States, and probably 65%, 70% of that is refinance eligible with rates as low as they are. Unfortunately with that, there’s a lot of misinformation. Not necessarily misinformation, but just manipulation of the data, both for clicks in the media and in different ways from lenders.Verify my mortgage eligibility (Jan 21st, 2022)
So, I want to quickly go through this. The one that you guys are probably all-seeing, every Thursday, Freddie Mac releases their primary mortgage market survey. What that is, is all the loans they bought the previous week. So, when I say the previous week, that means this data is an aggregate of the prior week.
Mortgage rates change daily, and oftentimes intraday, and with that, we have out of date information by a week here. Now the market as we’re gonna see. We’ll go back into the bond market chart, and you’ll see the market been so flat, that the week out of date has not been a problem here recently, but what’s interesting is, every week the media throws out headlines, mortgage rates hit an all-time low, so I wanted you to see what that looks like.
We started way back here early in February. The 30-year fix, which is this blue line here, got us down to 3.5%, and you go wow, 3.5%, that is an amazingly good interest rate, and it is, and it was, and that was over coronavirus concerns, and how it was gonna impact the rest of the world.Verify my mortgage eligibility (Jan 21st, 2022)
That point being in February, no one had any idea how much it was gonna impact us here in the U.S. As you can see we kind of stayed level there for several weeks, went even lower took a dip down to 3.25%, and this is about when coronavirus became real for the United States. We had shut down orders, all sorts of.
I don’t need to rehash it. You guys know what happened, and the immediate reaction is the mortgage markets just panicked, and rates shot up. That really was about a week or two blip, and then we were back here, right at that 3.25% level, and we go 3.25%, just above it for week one, week two, week three, right down to it.
So again, here we have this one, we have a headline, all time record low mortgage rates. Two weeks later, all time record low mortgage rates. Three weeks later, all time record low mortgage rates, and then last week, a 3.15% average rate.Verify my mortgage eligibility (Jan 21st, 2022)
So, in addition to the data being seven days out of date, Freddie Mac also quotes the average amount of points paid to get that rate, and usually, you’ll see them vary from .3 to .5, sometimes a tiny bit lower than .3, but almost always you’re gonna see .3 to .5. The interesting thing this last week, 3.15%, the average was .8 points, so I don’t think that’s a coincidence.
We have one of the major wholesale lenders in the United States, United Wholesale Mortgage, about two weeks ago, it might have even been three weeks ago, jumped up and did basically a press blitz, PR Release, their CEO, Matt Ishbia, was actually on Good Morning America last week, saying, hey we’re offering rates as low as 2.5%. Anyone who hasn’t refinanced in the last six months should talk to a loan officer, and to a large degree, that’s correct.
The 2.5% rate is the silly part. They do offer it, they offer it on their rate sheet, and about 25 other lenders offer it on their rate sheet, and for every borrower that would be interested in it, it’s 2.5 to 3.5 points, so you’re trading a giant chunk of your equity for getting that super-low interest rate. So, the message is getting out there. Loan officers are picking up that message, lenders are picking up that message and saying, hey rates are at an all-time low.Verify my mortgage eligibility (Jan 21st, 2022)
This might be the lowest they’re ever gonna get. Let’s go and maybe pay some points, and buy this rate down. So a couple of things to know, we’re gonna get here a couple slides later, and go into where our actual broker rates are today, with zero points, and you’re gonna see they’re right above this level with zero points, and with a point, or .8 points, I’m being charged are a good bit lower than that, but I want to go through what we think is happening, and why I think most people are better off not buying that rate down to an ultra low level, because there’s a good chance they’re gonna go even lower.
So, jump in here, and this is the bond chart that we’ve been showing you guys all year. This goes back to March. Some of the chaos here is getting eradicated in another two, three weeks, we’ll have an amazingly flat bond chart. So the thing to remember here, this reflects bond prices as they go up, that’s good. That means interest rates are going lower.
So, with that, this was a good sign of rates going better. Now, we’ve had massive fed intervention here of buying mortgage bonds, and they’ve been trying to keep them, and trying successfully to keep bonds in this range here for now, going back to the middle of March, end of March, so all of April, all of May, we got 60 days of going almost nowhere from, you know, at the high of 104 and a low of 103, but what I wanted to show here is, we’re gonna have a little bit of a breakout.Verify my mortgage eligibility (Jan 21st, 2022)
Before I go to that next slide, this line here is the 25-day moving average, and once we fell below that, that was resistance, meaning the bond prices don’t want to go above that. And then we have this 50-day moving average, and every time we’ve gone down to it, that’s held, and that’s been our support. So what this does is this forms a pennant formation.
Now with my pretty drawing here, hopefully, you can see why they call it that. We have lower highs and higher lows. It’s a bunch of energy in the market, and that will usually lead to a breakout, and the majority of the time the breakout is to the direction of the previous trend, which was for higher bond prices.
So, we are expecting the bond prices to continue to go to the high side, and rates to get better. That is not why I necessarily expect rates to be better, or why I don’t think people should be paying points. What we’ve talked about a month or so back, and I actually, you can tell, I am a little bit of a space cadet right now.Verify my mortgage eligibility (Jan 21st, 2022)
I wanted to throw that slide in there, of showing what the historical spread is between the 10-year Treasury and 30-year fixed-rate mortgages. For the last 10 years, it’s averaged 1.7%. The 10-year Treasury right now has been bouncing around between .65% and .7%. So treasuries have gone really, really low. Mortgages, mortgage bonds have done really good, and gone high, meaning yields are low.
Mortgage rates to consumers are high, as crazy as that sounds, we’re looking at an all-time low the headline are high relative to where they should be. If we had our historical average for the last 10 years of a 1.7 premium on top of the 10-year, at .65, a 30-year fixed-rate should be at 2.35%.
That tells us, other things being equal if the economy stays at this level, and the 10-year Treasury stays in that .65, .7 range, and we normalize back down to 1.7, the rates are gonna go much lower, but we have a lot of room for them to even get higher.Verify my mortgage eligibility (Jan 21st, 2022)
I personally think the 10-year is gonna be that low, and I know some really, really smart people, a lot smarter than me that think that it’s gonna go as low as .3%, but when we see that we’re going to see mortgages, likely, over the next 12 to 24 months go even lower than they are right now.
So, the best example I went through with a client, longtime client’s had a bunch of loans with us. He’s getting all the flyers in his inbox, he’s seeing banner ads on the internet. He’s seeing commercials and saying, hey I can get a 2.75% 30-year fixed. I said absolutely you can, but the numbers that we’re running, and it may make sense for him to pay the point.
The numbers we were running that with the point, you can get 2.875%. With a no cost loan he was at about 3.25%, and we started looking at that, the breakeven is out about 36 months. There’s nothing wrong with a 36-month breakeven, or even a 48-month breakeven. There’s a good chance that someone will stay in that loan, and it locks in the current low interest rate, but it’s important that you don’t just take what’s sold and pushed on you.Verify my mortgage eligibility (Jan 21st, 2022)
I think we’re gonna get those lower interest rates for free. Again, it may take 12, 24 months. We need that forbearance premium taken out of interest rates, and when I say forbearance premium, the forbearance issue is getting a lot clearer, but lenders are still scared. They don’t know how many of those are gonna not be able to repay, that might end up in foreclosures, or short sales.
I don’t think it’s gonna be a huge issue, but lenders are still concerned and worried, and so we have that big premium, or to over 2.5% spread. When you say we’re at 3.15 versus a .65, we’re right about 2.5% spread. That should normalize to 2% or lower, and Treasury should stay low. So, bottom line, the most important thing to understand and hear from all these folks, is that nearly everyone with a mortgage is in the market for a refinance right now.
Definitely talk to an expert, talk to an advisor, talk to more than one. There’s nothing wrong with getting quotes, and making sure you’re looking at something competitive. The biggest mistake I see, is someone calls the crazy commercial, or sees a billboard, and sees a number, and calls and takes whatever the 22-year old kid in the call center sells them, versus having an expert walk them through what each of those options means.Verify my mortgage eligibility (Jan 21st, 2022)
Any of them can be the right one for you, but it’s important that you be educated so that you can make an educated decision. So with that, let me close with where our rates are at right now. The standard balance loans, the high balance stuff is still out of whack. Good, very good interest rates, but they’re out of whack relative to where they have been historically.
So we look at loans under $510,400 conventional rates, 3.25%, with zero points, with very low fees, under $2,000. Most of them are about $1,500 to $2,000, zero points. If we want to pay a point on that, it’s gonna be under 3% for most borrowers, about 2.875%. The FHA is about 2.75% with zero points, VA also at 2.75% with zero points. Also, I’ve seen some crazy things.
People will call and tell me, hey, someone told me I can get 2.25% on my on my VA loan, or on my FHA loan. You absolutely can, but again it’s taking a couple points to do that. It’s primarily being done to veterans, on these VA loans, because the VA will allow you to finance those points. So again, you get a salesperson in a call center saying, hey I can get you 2.25%, you’ll have the lowest rate in the world.Verify my mortgage eligibility (Jan 21st, 2022)
Can you believe that? And they don’t explain what it means to actually pay those points, to trade your equity, for that low interest rate, when there’s a real good chance, we’re gonna get that for free in the future. So the high balance stuff, as you can see, is a little bit higher. Instead of 3.25% with zero points, you’re about 3.5%, with .5 point.
FHA, 3.25% with .25 point, and the VA, 3.25%, with about a full point. The VAs are the worst right now, and the primary reason is just because they’re having that the highest uptake rates on the forbearance. So again, it may take a month or two, but those should normalize and end up being only about an eighth above the standard balance loans.
That’s where we typically are, is about .125 higher in rate, and you can see right now, we’re .25 to .5, with some amount of points being involved in there. And for the most part, with the FHA and VA, we can’t even do it no point option, or the rate is so high that you’ll choose to pay those points. So, said that was gonna be short and brief tonight. I’m around here at 15 minutes, so I will get out of your hair.Verify my mortgage eligibility (Jan 21st, 2022)
If you tuned in, I appreciate it, appreciate for paying attention. All of you, Christine, Rhonda, Bridget, all of you who sent your thoughts our way, I really do appreciate it. You know, it’s the nature of life. None of us lasts forever, but it’s not fun when it ends. So, my only hope in the thing that I’m taking and learning from it, is to be as good to as many people as possible, that people will say the good things about me when I’m gone, that they did about my dad, and do about my dad.
So, again, thanks for joining us. We’ll be back Thursday. We’ll go much more in depth, and we’ll have less about me and more on on the mortgage markets. Howard here, actually, let’s jump in, and we’ll answer a question real quick.
Howard says, “Can you explain a point example “based on 500,000?” A point is 1% of your loan amount. So a $500,000 loan here, conventional loan, 3.25% at zero points, you’d have on a refinance about $2,000 of total costs. If we wanted to get that 2.875% rate, you would pay one point, or about 1% of the loan, exactly 1% of the loan, $5,000. So instead of having $1,500, $1,800, $2,000 of closing costs, you’re gonna have $7,000 of closing costs.Verify my mortgage eligibility (Jan 21st, 2022)
So as a homeowner, you’re essentially trading equity for a lower payment, and there will be a break-even period over time, but again, we believe that there’s a better than 50-50 chance of rates moving lower in the future.
What we’re doing for all of our clients now, is looking at low and no-cost refinances to lock in the benefit of the current interest rates, but still leave us in a position where we don’t have the sunk cost of having paid points, and can take advantage if and when rates do move lower in the future. So, again, I appreciate all your thoughts.
Any of you have questions like Howard, shoot ’em out, leave ’em in the comments. We’re gonna cover a lot of stuff Thursday, and I know there’s so much craziness going on in the market, you know, that there’s just a lot of questions. Homeowners, real estate professionals, whatever you want to know, let me know, and we’ll go through it here.
All right, have a great night, and we’ll talk to you guys Thursday.Show me today's rates (Jan 21st, 2022)