Mortgage rates hit a new low again, giving a record number of homeowners the opportunity to refinance.
The average 30-year fixed mortgage rate fell to a record low of 2.86%, according to Freddie Mac, a government-sponsored agency that backs millions of mortgages, marking the ninth time the rate reached a new nadir in 2020.
The rate could allow 19.3 million U.S. homeowners to lower their rate by at least three-quarters of a point by refinancing, the largest population ever, according to Black Knight, a mortgage data and analytics firm.
But some homeowners may not be able to reap the benefits because of stricter standards and overburdened lenders.
“Consumers are enjoying the lowest rates most of us will ever see in our lifetime,” said Jeremy Sopko, CEO of Nations Lending Corp., a mortgage lender. “The question is whether or not they’ll be able to take advantage of those rates.”
Refinancing could be harder to do
Those who want to refinance an existing mortgage may run into roadblocks because there are too many refi applications for lenders to handle, especially during the pandemic, Sopko said. The volume of refinance applications last week were 60% higher versus the same week a year ago, according to the Mortgage Bankers Association.
“As demand spikes, we’re seeing many lenders that simply cannot cope with the volume of applications,” Sopko said. “For many lenders, there’s now a scramble to get underwriters and processors back behind their computer screens to help ease the clog in the pipeline.”
Qualifying for a mortgage has also gotten tougher. An index that measures how difficult it is to qualify for a mortgage dropped by 4.7% in August. A decline indicates that lending standards are getting more restrictive.
“Credit continues to tighten because of uncertainty still looming around the health of the job market, even as other data on loan applications and home sales show a sharp rebound,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
A shortage of loan programs that accommodate borrowers with low credit scores, smaller down payments, and reduced documentation also contribute to an overall decline in credit availability, according to Kan.
‘Low rates have ignited robust purchase demand’
Homebuyers, too, will look to lock in these historically low rates, but they face other obstacles. A lack of for-sale homes remains a key factor, Sopko said.
“Inventory is scarce across most of the country and that has been exacerbated by a flood of people looking to leave big cities who were spooked by the COVID-19 pandemic,” Sopko said. “So, even though rates are historically low, the question is whether or not you can find a house within your price range right now.”
The number of homes on the market declined by more than 30% in August compared with the same month last year, according to real estate listing site Zillow. At the same time, buyers — undeterred by the pandemic — continue to flood into the market.
“These low rates have ignited robust purchase demand activity, which is up 25% from a year ago and has been growing at double-digit rates for four consecutive months,” said Sam Khater, Freddie Mac’s chief economist. “However, heading into the fall, it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity.”