Much like the changing of the calendar, buying and selling homes follows a seasonality that that those in mortgage and real estate have grown accustomed to. But a recent study from tech startup Haus found that mortgage rates can also be seasonal, and borrowers can benefit from understanding that rhythm.
Analyzing over 8.5 million mortgage originations between 2012 and 2018 from Freddie Mac’s Single-Family Loan-Level dataset, Haus found that the sweet spot for rates is typically in January, when mortgage originations also typically slump.
Ralph McLaughlin, chief economist at Haus, explained the correlation. “So, what do lenders have to do to be competitive? They lower their rates. But let’s look at when Treasury rates were dropping like crazy early in 2020. What that usually means is that mortgage rates would also drop like crazy. But at first, mortgage rates didn’t drop. And it’s because there was such a flood of people looking to refinance that lenders couldn’t keep up.
“They couldn’t keep up with demand and so if they couldn’t keep up with demand that allows them to keep their prices relatively high,” McLaughlin said.
2020 was an outlier, with mortgage rates dropping to record lows on 16 different occasions. However, many economists expect as the economy begins its post-pandemic recovery, rates will also begin to stabilize to a more predictable pattern.
“We forecast rates to remain relatively low this year as the Federal Reserve keeps interest rates anchored near zero for a longer period of time, if needed until the economy rebounds,” said Sam Khater, Freddie Mac’s chief economist.
If rates stay low, the Haus study estimates that borrowers buying houses between $400,000 and $500,000 are going to reap the greatest reward – averaging a discount of 23 basis points compared to cheaper loans. That’s because it costs the same to originate a loan that is half a million dollars as it does $200,000, but the latter doesn’t involve as much return.
“You’re not making as much as you would on that more expensive mortgage, obviously, in order to cover some of those fixed costs, so lenders actually increase rates on the lower end of mortgage originations.” McLaughlin said.
Source : Housingwire