Lower interest rates that have the power to reduce house payments are triggering a surge in mortgage refinancing activity and giving real estate agents hope that more affordable rates can lift area home sales that are barely lagging behind 2018.
The Baton Rouge market is coming off a year that produced $3.6 billion for 17,400 home mortgage loans underwritten across more than 350 lenders. Those numbers outpaced 2017's 16,800 mortgage loans and could shoot even higher because of interest rates that have trailed down through the course of 2019 to a three-year low.
“We’re in the middle of another refinance boom,” said Terrell "Tee" Brown Jr., CEO of Baton Rouge-based mortgage lender GMFS LLC, the largest lender in the metro area.
About 30% of GMFS home mortgages underwritten nationally this year have been refinancings, down from 15% one year ago.
“There are folks who got into a mortgage a year ago and now can lower it another 100 basis points or more. It’s our first record month since August 2016,” he said of the firm's July mortgage numbers.
For example, a 30-year $200,000 home loan financed at a 4.5% interest rate would cost about $1,013 per month. Financing that same mortgage at a 3.6% interest rate would save the homeowner about $100 a month, which can add up over the life of the loan for prospective buyers or those refinancing who plan to remain in the house long enough to recoup refinancing costs.
During the first six months of this year, GMFS underwrote more than 4,000 loans totaling $865 million. By the end of this year, GMFS expects to hit 9,000 loans worth $2.1 billion. Baton Rouge metro data for this year was not yet available.
Nationwide, the Mortgage Bankers Association's home mortgage refinance index was 180% higher than one year ago during the second week of August, according to the organization's mortgage applications survey. The purchase index was 5% higher during the same time frame, according to the national survey. Refinancing activity was 62.7% of total applications across the country during the second week of August and at its highest level since September 2016, according to the survey.
The average interest rate on U.S. mortgages was 3.6% for a 30-year loan and 3% for 15-year loans as of Aug. 15, according to mortgage purchaser and reseller Freddie Mac. That's down from 4.5% and 4% one year ago.
In general, U.S. Treasury yields are an indicator about home mortgage rates. By comparison, the 10-year U.S. Treasury yield is less than 1.6% and the 30-year Treasury yield is about 2%, records show, falling from 2.8% and 3%, respectively, about one year ago.
Realtors are hopeful that lower interest rates can spur more home sales in Baton Rouge by offsetting rising home prices. The median sale price of a home in the Baton Rouge area has increased by 4% from a year ago; the number of homes sold was down about 3% in July from a year ago, narrowly tipping sales for the year below 2018 levels, according to data from the Greater Baton Rouge Association of Realtors' Multiple Listing Service. The July numbers also show pending sales down 2.2% and days homes are on the market up 3.1% to 64 days. Selection is improving, with new listings rising 3.2%, and inventory up 3.2% and hitting a five-month supply, with six months considered a healthy market supply.
"I have a lot of clients who are refinancing," said Chelsea Meng, president-elect of the Greater Baton Rouge Association of Realtors and agent at CJ Brown. "I've seen a boost in buyers but not as much as I expected to see. I think with these interest rates so low, people are able to buy a little more than they normally would."
Most of the home mortgages underwritten in Baton Rouge in recent years were for purchasing houses — about 10,900 home purchases, compared with 5,000 mortgages for refinancing. That's been roughly the same split for the past four years, records show.
How that split might change going forward with the surge in refinancing activity over purchasing isn't clear, but the impact of lower interest rates overall is noticeable for mortgage lenders.
Baton Rouge-based Assurance Financial did not have a breakdown of refinancings vs. new purchases but reported its biggest month in the company's 18-year history in July. It originated 500 mortgages across the country. In 2018, it underwrote 3,600 mortgages nationwide. This year, it's on track to hit 4,000 mortgages.
Assurance Financial underwrote more than 1,100 home mortgages worth $265 million in the Baton Rouge metro area, as of July 31. The company already has outpaced 2018, when it underwrote 1,103 mortgages worth $247 million for the full year, records show.
"We had our best month we've ever had in July, and we'll follow that up with our second-best month in August," CEO Kenny Hodges said.