Record lows in mortgage rates have caused a jump in borrowers applying to refinance their home … [+]
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Applications to refinance home loans have tripled from a year ago in each of the 50 largest cities and in all but five states as record-low mortgage rates clearly resonated with homeowners. San Francisco and Raleigh, North Carolina, are experiencing the most growth in refinance applications, which increased 417% and 406%, respectively, according to LendingTree, the nation’s leading online loan marketplace.
As the economic impact of the coronavirus grows, unprecedented volatility in mortgage interest rates has been a boon for the pocketbooks of home buyers and homeowners. Rock-bottom mortgage rates have helped propel U.S. home sales and the refinance market.
Existing-home sales climbed substantially in February after a slight decline in January, according to the National Association of Realtors. Of the four major regions, only the Northeast reported a drop in sales, while other areas saw increases, including sizable sales gains in the West.
“February’s sales of over 5 million homes were the strongest since February 2007,” said Lawrence Yun, NAR’s chief economist. “I would attribute that to the incredibly low mortgage rates and the steady release of a sizable pent-up housing demand that was built over recent years.”
Tendayi Kapfidze, chief economist for LendingTree, said a stampede of refinance applications has overwhelmed mortgage originators. This led to a rebound in the 30-year national average mortgage rate from its record low of 3.29% in the week ending March 5, which took some of the momentum out of the refinance market.
“A mortgage refinance, particularly at these historically low rates, presents an attractive opportunity for homeowners,” said Kapfidze. “Compared to a year ago when rates were 1 percentage point higher, consumers save nearly $60 per month, or $700 per year in payments, for every $100,000 borrowed. Interest savings add up to about $20,000 over the 30-year term of a typical mortgage.”
States and cities with higher average credit scores and greater home-price appreciation are better positioned to take advantage of the historic refinance opportunity. The improvement in the balance sheets of those households could help those areas recover more robustly when the economic crisis induced by the coronavirus ends, Kapfidze explained.
In addition to San Francisco, three other California cities are in the top 10 ranking of refinance applications. San Jose, San Diego and Los Angeles saw refinance applications grow 394%, 360% and 345%, respectively, from last year.
Buffalo, New York; Louisville, Kentucky; and Memphis lag behind the rest of the nation’s metros in refinances. Kapfidze said borrowers in these three cities are taking the least advantage of a historic refinance opportunity, though they still show growth rates above 200%.
Nebraska had the fastest growth of all states. Applications were up 338%, leading the nine states with growth rates above 300%, including Washington, Alaska, Virginia, North Dakota, Minnesota, North Carolina, California and Montana.
The survey shows five states are notably underperforming in refinance applications. With growth rates below 200%, borrowers in West Virginia, Mississippi, Kentucky, Arkansas and Alabama are missing out on an opportunity to significantly lower their mortgage payments.
LendingTree compared consumer mortgage refinance applications in early 2020 to a comparable period in 2019.