Since the beginning of 2019, mortgage rates have dropped despite early predictions that they would continue to rise this year. As a result, mortgage refinances have greatly increased.
The Rise of Mortgage Refinances
With rates for a 30-year fixed mortgage rate (with conforming loan balances and a 20% down payment) dropping from 4.40% to 4.33% for the fourth consecutive week, it’s no wonder that property owners are taking advantage of the situation. In fact, mortgage rates are currently the lowest they have been since January 2018. And because the volume of mortgage refinances is so sensitive to changes in rates, they jumped 8% which is the largest increase in the past month.
The total volume of mortgage applications rose by 2.4% last week, compared to the previous week. This was an increase of 15% from the same time last year, according to the Mortgage Bankers Association’s (MBA) seasonally adjusted index. Even though mortgage refinances made up a good portion of these applications, those for the purchase of a new property actually fell 2%. However, compared to the same time last year, they are up 7%. This is reflected in the fact that property sales have been lower than expected for the spring real estate market. NAR reports that April home sales were down 4% YOY.
Joel Kan, the Associate Vice President of Economic and Industry Forecasting at MBA, had this to say about the fall in April sales:
We’re keeping a close eye on whether there may be some adverse effects of the ongoing global trade disputes on overall demand. Some potential homebuyers may be delaying their home search until there’s more certainty.
What This Means for Real Estate Investors
There are two key takeaways for real estate investors. For one, investors who own rental property may take this as a sign that it’s a good time to refinance. This will allow for better mortgage payments and more cash flow. You may even be able to buy another investment property using this strategy.
The second takeaway has to do with the drop in home sales. While perhaps not apparent in major cities that are seller’s markets all year round, competition may be less heated as we move into the summer season. It may be the best time to start looking for an investment property to try and get a good real estate deal before things inevitably heat up again.
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It can also mean that as first-time homebuyers sit this buying season out, demand for rental properties can rise in certain locations.
Of course, these are general real estate trends. Be sure to study your local housing market to ensure it’s the best time to invest in real estate or refinance your rental property.
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