Investor Anxiety Over Global, Domestic Unrest Push Fixed Mortgage Rates to Two-Month Low

It is one of the most basic rules of economics: Any uptick in political unrest — whether it is global unrest, domestic unrest, or some combination of the two — consistently provokes anxiety among investors. The product of this anxiety can be seen in a multitude of ways, but the most common is the shift in investor focus away from stocks and toward bonds.

With these specific economic conditions, mortgage rates are almost always affected as well. It should come as no surprise, then, that the most up-to-date information provided by Freddie Mac reveals that the average 30-year fixed mortgage rate reached a new two-month low, dropping to an average of 3.89 percent.

The rate is still up from one year ago, when the average 30-year fixed mortgage rate checked in at 3.43 percent. That being said, many analysts have noted that investors — many of whom expressed high hopes for an economic boon in the form of sweeping fiscal reforms — have thus far ignored the near-constant political drama associated with the new administration in the White House.

It is possible that the most recent political turmoil ultimately comes to be viewed as an inflection point in which even the most optimistic of investors see it as less and less likely that the administration will be able to enact the kind of fiscal reforms that had been hoped for. If this is indeed the case, the impact of this increased level of apprehension and anxiety among investors may contribute to an even greater drop in mortgage rates over the weeks and months to follow.

Of course, it’s also possible that even with all the tension and turmoil — including the threat of military intervention in places all over the globe, not to mention the ongoing saber-rattling emanating from officials in both the United States and North Korea — will only have a relatively minor impact on mortgage rates. In fact, many experts expect mortgage rates to remain relatively stable in the coming weeks, as evidenced by the results of a recent survey conducted by Bankrate.com, which showed that half of all the experts surveyed felt that mortgage rates should be expected to enjoy relative stability — at least in the short term.

There are other factors at play that are expected to influence mortgage rates, including the ongoing discussion among officials at the Federal Reserve regarding the potential for another rate increase in late 2017. While the Fed has been relatively transparent concerning its intentions — including in its plans to address the need to correct the balance sheet — analysts have nonetheless found it difficult to accurately predict the impact of the many different factors that might influence mortgage rates.

The economic ambiguity and the hazy expectations concerning the not-too-distant future is evident in the data recently released by MBA (the Mortgage Bankers Association), which showed that mortgage applications essentially remained unchanged over the same week in which fixed mortgage rates continued to fall. Additionally, the purchase index fell by two percent during that same period, and the refinance index increased by two percent. The latter increase serves as a strong indication that borrowers are increasingly recognizing the benefit of taking advantage of the two-month low in fixed mortgage rates by refinancing.

MBA’s data also revealed that although purchase application volume indeed dropped by nearly two percent as fixed mortgage rates hit a two-month low, the overall purchase application rate is still well ahead of 2016’s pace. While 47.8 percent of the loan application volume could be attributed to activity relating to refinancing, the purchase application volume is nonetheless close to 10 percent ahead of pace when compared to the previous year.

Nearly 5 Million Apartments Needed in US by 2030

Several critical factors — including an aging population, international immigration, and couples increasingly choosing to delay marriage — have resulted in projections indicating a need for the United States to add close to 5 million more apartments by 2030 in order to meet the demands of its rapidly changing population. This is according to a recent study conducted on behalf of the NMHC (National Multifamily Housing Council) and the NAA (National Apartment Association).

As it currently stands, the approximately 39 million people dwelling in apartments is already stressing the capacity of the apartment industry, a product of the fact that, over the past five years, an average of one million new renter households formed each year. Based on those figures, the United States needs to create 325,000 new apartment homes per year in order to meet the projections for future demand. The fact that an average of only 244,000 new apartment homes were built per year from 2012 to 2016 illustrates some of the inherent challenges associated with the growing demand for apartment housing.

It’s important to take a closer look at some of the underlying factors driving the rapid increases in demand for apartment homes in the United States. Since life events play such an important role in driving home purchases, the fact that so many Americans are waiting longer to get married is affecting the level of demand for apartment homes. Married couples with children account for less than 20 percent of households in the United States, a 25-percent drop compared to 1960.

The aging population of the United States is also contributing to the rising demand for apartment homes, as the research conducted by the NMHC and NAA indicate that people 55 and older will be responsible for over 30 percent of future rental apartment homes. Over the last 10 years, the demographic of people age 45 or older made up more than 50 percent of the net increase in rental apartment households, a trend that is expected to continue going forward.

Immigration will also have a substantial impact, but disproportionately so in the border states: 51 percent of all population growth in the US is expected to come from immigration, which will in turn drive the increased demand for apartment housing across the country.

Although the entire country should expect to be affected by the changing population and the growing demand for apartment housing, certain regions of the country are likely to experience greater increases when compared to others. Western states, along with Texas, North Carolina, and Florida, should expect to see the sharpest increase in demand for rental apartment housing through 2030, particularly in cities like Austin, Raleigh, and Orlando.