Low Interest Rates Fuel Mortgage Market

YOUNGSTOWN, Ohio – Heading into the peak of the home-buying season, the mortgage market is much the same as it was last summer, local lenders say. But that doesn’t mean it’s been entirely smooth sailing over the past year.

On June 6, the average for a 30-year fixed-rate mortgage was 3.82%, according to the Primary Mortgage Market Survey by Freddie Mac. A year ago, on June 7, it was at 4.54%. In between those two points, though, rates peaked Nov. 15 at 4.94%.

“We’re probably working on a good two-month period where rates have stayed steady and started to decline,” says Tony Lucarelli, vice president of residential mortgage lending at Home Savings Bank, Youngstown. 

“We’re pushing that 4% threshold on a 30-year fixed, which is probably half a percent lower than where we started the year,” Lucarelli says.

The weekly average mortgage rate, according to the Freddie Mac survey, hasn’t increased since April 25, when the rate was 4.2%.

“Mortgage rates went up pretty significantly starting about November, then through February. Since then, they’ve been going down rapidly. My comment at this time is almost identical to my comment last year,” says Bill Fulk, vice president of lending at 717 Credit Union.

“Business has been fantastic for us,” he told The Business Journal a year ago.

Looking down the road, many expect rates to remain low for the remainder of the year, if not longer. And although there are clouds on the horizon forecasting an economic downturn – experts from around the world have been pointing to signs that range from bond yields to employment rates to the gap between retailer’s stock prices and consumer confidence – the lenders say that, if anything, could drive rates lower.

“In this economy, I’m not sure that anyone has a good opinion on what the future is because there are so many variables right now. Typically, when the economy does worse, rates go down,” says Rocky Page, retail mortgage banking officer at Cortland Bank, Cortland. “We’re at 3.875% [on May 31] and there isn’t too much room to go down. However, an economic downturn could do that.”

Even still, the current dip in mortgage rates isn’t necessarily indicative of problems on the homefront, Fulk notes.

“What causes it is things outside of our control. We’re hearing about the trade issues and the stock market, which had been on a downward slide because of the trade talk,” he says. “Those long-term interest rates are probably more because of other economies being weaker than ours, forcing the long-term rates down.”

For the lenders, the low rates have meant a surge in applications for mortgages. At Farmers National Bank, Canfield, the volume of applications in the first quarter was up 38% from the same period a year earlier, reports Mark Witmer, chief banking officer.

“We’ve seen a really strong market here and it’s continuing. The first quarter ended in March, but through April and May, we continue to see strong volumes well ahead of a year ago,” Witmer says.

At Chemical Bank, activity has been up as well, says senior mortgage lender Jay Warnock.

“It’s definitely busier this year. The amount of people that are calling for information is up. The amount of applications we’re taking is picking up. It’s more brisk across the board,” he says.

Typically the largest group of applicants, lenders agree, are first-time homebuyers, especially through the early parts of the year. During the colder months, Fulk says, people shopping for a house “are looking to buy for a reason, such as being a first-time buyer.”

“Early in the year,” affirms Page, “with people getting their tax returns, we see a lot of first-time homebuyers.”

Among their top concerns is often affordability, Lucarelli says, especially those who have recently graduated college and are dealing with student-loan debt, which eats into monthly budgets.

“It’s a very real thing,” he says of its impact on the mortgage and real estate markets. “The cost has continued to increase and you’re coming out of school with debt, you’re trying to find a job and oftentime you may not be able to buy a home right away. You’re managing what you can afford.”

In some cases, debt from student loans can drastically alter the price range of homes that such a buyer can afford.

“If you have $1,500 a month in buying power and a car payment of $300, credit cards for $100, then you have $1,100 left and a house probably around $150,000,” Page says. “If there’s that extra $600 in student loans, that means you can only afford to look at houses around $70,000.” 

That limited budget is further tightening the inventory such buyers can afford, as a higher monthly payment means less is available for repairs, renovations and upgrades.

“For over a year, we’ve had a pretty large inventory of preapproved buyers who’ve been out looking for a home,” Fulk says. “There’s lots of inventory, but it’s not the inventory people want to buy, especially for first-time homebuyers.”

And with plenty of people looking for a house, whether a starter home or a smaller one to downsize into, the tight inventory in the Mahoning Valley has been a boon for lenders as clients seek preapproval for mortgages, in some cases before they start shopping. 

“The most important thing now, with inventory being low, is get preapproved,” Warnock says. “If you walk into a house, you have to be ready. Some real estate agents won’t show houses unless you’re preapproved.”

That race to get preapproved has opened up new lines of contact with customers. Chemical Bank clients can apply for mortgages via the bank website, as can those at Home Savings, 717 and Farmers, the latter of which also has a dedicated mobile app for mortgages. At Cortland Bank, an online portal should be operational by the end of June, Page says.

Even with the launch of a digital platform, Page says, most business should still be done face-to-face.

“You need to have that option available. In most cases, it’s a tool to get things started and a good tool for communication,” he says. “Business hasn’t come to the point yet where there’s no personal interaction. In almost every case, there has to be interaction between the bank and the customer.”

Copyright 2024 The Business Journal, Youngstown, Ohio.