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Record-low mortgage rates are spurring refinance applications, Lincoln managers say
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Record-low mortgage rates are spurring refinance applications, Lincoln managers say

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A local homebuyer locked up a 30-year conventional mortgage at a 2.875% interest rate, without paying any upfront "points."

"I've never done that before in my career," said Ben Barrett, who's been working in the mortgage industry for 34 years.

Thanks in large part to the financial uncertainty caused by the worldwide coronavirus outbreak, mortgage rates have fallen to levels that haven't been seen in decades — or possibly ever.

Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year mortgage hit 3.29%, the lowest since it began tracking rates in 1971.

The new record-low mortgage rate came in a week when the Federal Reserve made an emergency cut in its benchmark interest rate to aid the economy in the face of the spreading COVID-19 virus. Investors seeking safety and anticipating further rate cuts by the Fed to address the crisis have poured money into Treasury bonds and other fixed-income securities that are perceived as safe havens. Long-term mortgage rates tend to track the yields on the 10-year Treasury note, so they typically rise and fall in tandem.

Kelly Hillman, vice president of mortgage loans for Union Bank & Trust, said mortgage application activity is "at the highest level I've ever seen it, and I've been in this industry for 25 years."

Most of that activity, about 80%-90%, has been applications to refinance mortgage loans, Hillman said.

"At this point, with the rates where they're at, almost everybody could refinance," he said.

Barrett, who is an assistant vice president and mortgage branch manager in Lincoln for Missouri-based First Bank, said he's also seeing a number of refinance applications.

First Bank, he said, sets monthly budgets for refinance applications, and "we hit our March budget for applications (Wednesday).

"That's how good business is," Barrett said.

West Gate Bank has seen a similar surge in business.

Mark Hansen, president of the bank's mortgage division, said it's already gotten as many loan applications in just more than two months as it had all of last year.

Hansen said the bank is so busy, with volumes four to five times higher than normal, that it's having trouble accommodating all the loan applications.

"It's like a movie theater that's full, and there aren't any seats left," he said.

Hansen said the bank is extending the "lock" period, the time in which interest rates are guaranteed, to 90 days from the typical 45-60 days.

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Large drops in mortgage rates typically lead to surges in refinancing applications, as people look to get lower payments, shorten their repayment period or tap into home equity. Rates on 15-year mortgages, a popular refinance option, averaged 2.79% this week, the lowest level since 1991, according to Freddie Mac.

A surge in home buying tied to low interest rates is less likely, however, largely because of a lack of inventory.

“We've had inventory for the last eight months basically shrinking each year-over-year by double digits,” said George Ratiu, senior economist for Realtor.com. “No matter how much buyers want to buy, there are not enough homes.”

The Realtors Association of Lincoln reported there were only 355 existing homes for sale at the end of January, which is the lowest total for the month since at least 2017. That number represents only one month of supply at current sale rates.

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The low inventory and continued high sales — Lincoln again set a record for both existing-home sales and overall sales in 2019 — have caused prices to soar.

The median price of an existing home in Lincoln hit a record $189,000 at the end of 2019, up from $165,000 just two years ago, while the median price of a new home neared $310,000.

Hansen said one of the big benefits of the low mortgage rates is that it makes homes more affordable for buyers.

The question now is how much longer the drop in rates will last. And how low could they go.

Union Bank's Hillman said it's possible rates could go lower, but with the amount of volatility in the market right now, he suggests people who are in the market to buy or refinance go ahead and lock in a rate.

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That's what Chad Kilpatrick and his wife did.

Kilpatrick said he got a 3.375% rate two weeks ago on a 30-year fixed mortgage.

Though rates have since dropped considerably, he said he had "zero regrets."

"Found our dream house and am very happy," he said.

Report: Still cheaper to buy than rent in Lincoln

Reach the writer at 402-473-2647 or molberding@journalstar.com.

On Twitter @LincolnBizBuzz.

The Associated Press contributed to this story.

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Business reporter

Matt Olberding is a Lincoln native and University of Nebraska-Lincoln graduate who has been covering business for the Journal Star since 2005.

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