YOUNGSTOWN, Ohio — For all the headlines about nearly every sector of the economy taking a hit during the coronavirus pandemic, one seems to be weathering the storm so far: mortgage lending.
Four area financial institutions – Cortland Bank, Farmers National Bank, Home Savings Bank and 717 Credit Union – report a strong 2019 has continued its momentum, even through the first two months of the COVID-19 crisis.
“It could be the simple fact that this is something to do,” says Rocky Page, vice president of mortgage lending at Cortland Bank. “We had a strong 2019 and it’s just continued. Real estate was one of the essential businesses, so [real estate agents] were able to continue and I think, as a result, it carried over from last year. I thought it would [slow down], just because of how good last year was. But it didn’t.”
For much of the year, the lenders say, their mortgage business has been customers refinancing existing loans.
At Home Savings, mortgage sales manager Jennifer Hanigosky says about 60% of the bank’s local mortgage business has been refinancing.
The balance between refinancing and mortgage originations usually widens in the winter months, she says, as sales of houses and new construction dip.
“Builders don’t normally want to start homes in the winter and during the holidays and winter weather; sellers don’t want people traipsing through their home,” she says.
But this year, low interest rates have amplified the effect.
Although the Federal Reserve cut its benchmark rate to 0.25% in early March in an effort to curb the economic impact of the coronavirus – following three cuts in 2019 – the surge in refinancing mortgages came before that, the banks say.
“The refinance applications started coming in strong midway through February and have been building,” says Mark Witmer, chief banking officer at Farmers.
“Our closings in April made it by far the strongest month. But those applications started in March, maybe as early as mid-February. That was a few weeks before the Fed dropped their prime rate.”
At Canfield-based Farmers Bank, mortgage production is “four to five times what it was a year ago,” Witmer continues, in large part because of low interest rates, currently between 2.75% and 3.625% on 30-year fixed-rate mortgages.
For those looking to refinance, the general rule of thumb is to do so when a new interest rate is at least a percentage point lower than what’s already in place.
“If you’re saving a percent or two on an interest rate, because there are closing costs associated with refinancing and it takes time to recoup those costs, it’s probably a good time to take a look,” says Mark Senkowitz, real estate lending manager at 717 Credit Union. “If you’re at 4% and could shave a full percent off, it’s a good time to look.”
That rule isn’t always exact.
Dropping the interest rate 1% on a $300,000 loan will save much more money than doing so on a $50,000 loan, Page explains. His general advice is that if the closing costs of refinancing can be recouped within three years, refinancing is a good option to entertain.
The uncertainty surrounding the coronavirus outbreak has made some customers reconsider their existing loans, 717’s Senkowitz says.
“If they have some debt they want to pull together to reduce their monthly output, with the uncertainty of if they’ll have a job in six months, a lot of people are looking at that and their cash flow,” he says. “A lot of people are exercising this because of the unknown and these interest rates are really driving the credit union this year.”
While no one can be sure of how long the coronavirus pandemic – or its impact – will last, it’s likely that interest rates will remain low for much of the year, the bankers agree.
“I think rates are going to stay low for a good amount of time, whether it’s into the third or fourth quarter of this year,” Senkowitz says. “I can’t see them increasing interest rates because of the high unemployment rates and uncertainty of what’s going on. … It’s also an election year, so who knows what that’s going to bring?”
Even with refinancing being a big driver for the financial institutions, mortgages for purchases and new construction remain strong.
Home Savings’ Hanigosky notes there were 29 housing starts in the first quarter in Mahoning County, compared to 23 in all of 2019.
“A low inventory has been fueling the continuing growth in our pipeline. That’s been since probably 2018, when we really started to notice a housing shortage in our area,” she says.
“It’s a seller’s market and that’s what’s driving the market right now. Buyers are figuring that out and finding ways to maneuver through that, to the point where we’re seeing more housing starts in the Mahoning Valley.”
The four lenders expect the strong market to continue as the state reopens and the summer homebuying months arrive.
“I’m excited, especially as I look at the statistics,” Hanigosky says. Housing starts are up. More sellers are listing homes. “If you’re thinking of listing your home, now’s a fantastic time. You can get top price for your home and purchase or build another home at one of the cheapest rates you can find. There’s a lot of momentum going and I think the housing sector can help provide that momentum we need to start an economic recovery.”
Still, the local housing inventory is shrinking. Listing service Yes-MLS reported just 193 new listings in Mahoning County during April, down 46.5% from the year before. In Trumbull County, listings fell more than 50% to 126 and in Columbiana County, listings were down to 70 from 128 in April 2019.
“The real estate market is strong because it’s a supply-and-demand issue. It’s making the market strong. We’re seeing a lot of new construction because there aren’t enough nice, new houses available,” says Cortland Bank’s Page. “The virus is separate. But if people lose their jobs and the economy takes a dip, it would have to affect the real estate market just like it does everything else.”