Highlights from this report:
- Mortgage rates have dropped since the beginning of 2019.
- Experts predict they will remain below 5% (on average) into 2020.
- The FHA is now paying closer attention to borrower credit and debt.
- The standards for conventional mortgages have eased in recent years.
Planning to buy a home in 2019? Need a mortgage loan to make it happen? If so, there are some important mortgage trends and industry developments you should know about. Understanding the current state of the market will help you make a better informed decision.
With that in mind, here are five mortgage trends worth knowing about in spring and summer 2019.
1. Mortgage rates are hovering in the low 4% range (on average).
At the end of April 2019, the government-sponsored mortgage buyer Freddie Mac stated: “Mortgage interest rates saw a drastic decline at the end of March and have remained near the same level since then.”
The average rate for a 30-year fixed home loan was 4.2% during the last week of April. That was down from around 4.5% at the beginning of 2019. Six months ago, that average nearly reached the 5% threshold. So rates have come down quite a bit since then (despite a slight increase over the past four weeks).
In an April 29 news release, Freddie Mac’s chief economist Sam Khater wrote:
“While mortgage rates have risen in recent weeks, they remain lower than where they were a year ago and wage growth has accelerated and is finally growing at the same rate as home prices for the first time in seven years.”
He added that these economic trends could “translate into better home sales in the coming months.”
That’s the first mortgage trend home buyers should know about in 2019. Rates are lower now than they were a year ago. And they’re significantly lower than they were six months ago.
2. Rates are predicted to remain below 5% for the near future.
Mortgage rates have declined since the start of 2019. The big question now is, will this trend continue over the coming months? No one can say with certainty. But most industry analysts and economists expect 30-year loan rates to remain below 5% for the foreseeable future.
Last month, the Mortgage Bankers Association predicted that the average rate for a 30-year fixed home loan would average 4.4% during the second half of 2019.
Similarly, the economists at Freddie Mac recently predicted that 30-year mortgage rates would end up averaging 4.3% during 2019, followed by a slightly higher average of 4.5% in 2020. So here we have two key industry groups offering very similar forecasts.
Of course, no one can predict future interest rates with complete accuracy. But the general consensus among industry analysts is that 30-year loan rates will carry an average rate below 5% for the foreseeable future. And that’s an important mortgage trend for home buyers to follow.
3. Conventional loan requirements have eased over the years.
Recent reports show that the minimum requirements for conventional loans have eased over the past few years. As a result, credit availability has increased — especially for those borrowers with high debt levels.
The chart below comes from the Housing Policy Finance Center, part of the Urban Institute. It accompanied a report on mortgage credit availability, published in April 2019.
This chart shows how mortgage default risk has risen over the past few years. (Default occurs when homeowners stop making their mortgage payments, for whatever reason.)
For the past few years, the overall trend for mortgage default risk has risen. You can see that on the right side of the chart. Default risk is measured through credit scores, loan-to-value ratios, and household debt levels.
The increase in “default risk” is largely the result of a general easing trend in the mortgage industry. In short, it has become easier to qualify for a conventional home loan over the past few years. These days, borrowers are getting approved for conventional financing with (A) smaller down payments, (B) lower credit scores, and (C) higher debt levels.
The above chart applies to conventional loans in particular. These are mortgage products that can be sold to Freddie Mac and Fannie Mae, the two government-sponsored enterprises (GSEs) that operate within the secondary mortgage market.
The default risk for government-backed loans programs, such as FHA, has also increased over the past few years. But to a lesser degree.
Two quote the Urban Institute report:
“The GSE [conventional loan] market has expanded the credit box for borrowers more effectively than the FVR government channel has in recent years. The downward trend of credit availability in the GSE channel began a reversal in Q2 2011. From Q2 2011 to Q4 2018, the total risk taken by the GSE channel has more than doubled, from 1.4 percent to 3.0 percent.”
Housing Credit Availability Index, April 19, 2019
The takeaway for home buyers is that conventional mortgage loan requirements have eased over the past few years. Borrowers who have been turned down in the past — possibly as a result of having too much debt — might qualify for a loan in today’s market. (Whether that’s good or bad is another article entirely. We’re just focusing on mortgage trends for now.
4. FHA is paying closer attention to credit scores and debt levels.
As we reported on Wednesday, the Federal Housing Administration (FHA) is now paying closer attention to borrowers who have a high-risk combination of low credit scores and high debt levels.
Going forward, home buyers who apply for an FHA loan with these “risk layers” could undergo some additional scrutiny. In such cases, the mortgage lender could be directed to manually underwrite the loan — instead of processing it through an automated underwriting system.
To learn more about this, click on the linked story above, or refer to “FHA INFO announcement #19-07” available at HUD.gov.
5. Higher home prices mean bigger down payments.
In most cities across the country, home prices are still rising in spring 2019. And they’re expected to continue moving north over the coming months as well.
That means home buyers are making larger down payment (on average), when compared to those who purchased homes over the past few years.
According to the latest data from Zillow, the median home value in the U.S. rose 6.6% over the past year (as reported in April 2019). They predict that home values in the U.S. “will rise 4.1% within the next year.”
Of course, these trends vary from one real estate market to the next. Some cities are cooling down right now, in terms of home-price appreciation. While others are still posting double-digit annual gains.
This is one area where real estate and mortgage trends overlap. The steady rise in home prices has also increased the average down payment among buyers who rely on financing.
All home buyers should be mindful of this trends, but especially those who plan to buy in a market with rapidly rising prices.
Disclaimer: This article contains predictions and forecasts provided by third parties not associated with the Home Buying Institute. We have included them here as an educational service to our readers.