There is a silver lining to the recent economic turbulence: Mortgage rates have tumbled in recent weeks, triggering a rush to refinance and a race to the closing table for many Twin Citians.
At the end of last week the average conforming 30-year fixed-rate mortgage (FRM) fell to 3.6%, according to a weekly survey by Freddie Mac. That is nearly a full percentage point lower than last year at this time and the lowest in nearly three years.
"The mood is good," said Keenan Raverty, vice president for Twin Cities-based Bell Bank Mortgage, which is seeing a significant increase in mortgage applications for both purchases and refinancings.
Recent home buyers are also celebrating.
At the current rates, about 183,000 Twin Cities homeowners are now eligible to refinance, saving them on average $259 per month, according to Black Knight, a provider of analytics to the mortgage and housing industries. That is compared with 20,000 homeowners who would have been eligible to refinance in November when the average 30-year FRM was just under 5%.
For those eligible homeowners — generally those who can shave a half- or full- percentage point off their rate — the savings could be significant. For example, a person who took out a $250,000 30-year mortgage at the beginning of the year at 4.5% would save $132 per month on their $1,268 monthly principal and interest payment by refinancing, a total savings of $47,000 over the life of the loan.
"It's certainly true that lower rates have sparked the refi market pretty strongly, and this even includes folks who got rates as recently as the beginning of this year, which is pretty unusual," said Keith Gumbinger, vice president at HSH.com.
At Bell, more than 80% of the mortgage applications are from home buyers, but other lenders are reporting a much higher share of refinancing volume.
Nationwide, total mortgage refinance applications for the week ending Aug. 2 increased 12% from the previous week, and more than double the comparable period a year ago, according to the Mortgage Bankers Association.
The uptick comes in the wake of a slowdown in home sales last winter that forced many mortgage lenders to lay off staff and close offices.
"Many lenders tightened their belts this last winter," said Raverty. "And this hurts industry capacity when refinances come."
Meredith Winegar, mortgage president for Twin Cities-based Bremer Bank, said more than half of the company's applications are for refinances, up from about 20% before the recent rate drop. Most of Bremer's refinancing business is from borrowers who bought within the past four to 12 months.
"This is a bit unique for borrowers to think that they can benefit from refinancing after owning for such a short time," she said.
The rate declines come amid volatility in the stock markets, which sends investors into long-term bonds. With demand for those bonds on the rise, yields fall. Generally, mortgage rates track closely with those bond yields.
Lower rates have also been a boon to home buyers, but a shortage of the least-expensive listings is putting the reins on home sales.
During the week ending Aug. 3, home buyers in the Twin Cities had 4% fewer listings to choose from than they did at the same time last year, according to the Minneapolis Area Realtors. As a result, pending sales were flat.
That hasn't been the case at Edina Realty, where home sales so far this month are outpacing last year by about 4%, according to Greg Mason, CEO, Edina Realty Home Services.
"The lower interest rates seem to be keeping buyers in the market," said Mason "Despite the challenges around listing inventory at lower price points."
Gumbinger noted that mortgage rates haven't been an obstacle for would-be buyers, and lower rates could actually make it more difficult for buyers by pushing up prices.
"A lack of affordable, desirable homes to buy in the markets that need them the most isn't a problem that lower rates can solve," he said.