Q&A: Today’s mortgage market from a TD Bank executive’s perspective

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The mortgage and real estate industry have held strong since the start of the pandemic, and rates remain historically low while demand for housing has surged. It’s a great time to be a homeowner, with opportunities for refinancing your way to savings or commanding top dollar for your property if you decide to sell.

But, experts have been saying these trends can’t last forever. To get an idea of what’s to come, Bankrate spoke with Cameron Beane, head of pricing and secondary markets at TD Bank, about where the markets are likely to head and what homeowners can do to benefit in the current rate environment. Our conversation has been edited for length and clarity.

What are the key trends in the housing and mortgage markets right now?

I’ll start this off with taking a little bit of a step back to summer and fall of last year and bring us forward. Through July, with COVID last year, we saw interest rates bottom out. They largely closed the year low on a relative basis. As we turned the calendar and opened 2021, one of the themes that was sweeping through the market was how to think about additional stimulus and the job market that has so much continued pain. For a brief period early in January we did see interest rates climb pretty significantly, largely due to a lot of uncertainty, but the market has been settling down a little bit. Inflation is remaining fairly muted. That has brought about a consistency of rates coming back down to the areas near where they closed out the end of 2020. Many mortgage banking companies and banks have done a lot of hiring to support clients looking to apply for new mortgages or refinances.  

What’s the outlook for these trends? When do you think mortgage rates will start going up again, and what will happen to the housing boom when they do?

The Fed, through stimulus support, low interest rates and the purchase of mortgage-backed securities and Treasurys, is stimulating the economy and supporting low mortgage interest rates. This is likely to continue for some time until significant progress is made on the job front. That’s the one challenge we can all see and we can all feel: the pain in the U.S. economy is the jobless rate and the amount of the unemployed.

On the flip side of that, you have the housing market, you have home builders, you have Realtors, you have supply that is largely being soaked up rapidly because there maybe isn’t as much supply as there is demand. There’s no doubt that low interest rates and lack of supply pushes up home values but also increases home affordability. As long as you have those two anchor points, you’re going to be in a favorable situation. We’re still below 3 percent or at a 3 percent on the benchmark 30-year interest rate. That’s inherently, arguably, ridiculously low.

I do think most of what we see occurring and what most of the forecasts are, the runway on these trends is likely fairly significant. Does that mean all of 2021? I would say 2021 looks favorable for them to continue. And, I would say 2022 is where a lot of policies, action items, stimulus, job growth will be more in place, which will be the real test for how sustainable these trends are.

 How does COVID factor into all this?

There’s no question that the vaccine is going to be a catalyst in helping put service sectors back to work and make a significant improvement in unemployment and goods and services, etc.

The challenge is you’re going to need additional support in the growth, housing, housing starts, building supply and demand. That oftentimes is lagging given the job market and the labor force these producers need to build more houses. And, the municipalities need to keep up with that infrastructure. I would look at it similar to that same time horizon. If you want to look at 2021 as being favorable for homeownership and interest rates, and then change afoot in 2022 when employment improves. I would not want to speak to a particular date on when a certain datapoint is going to recover to a pre-pandemic level because the lay of the land has been changed so dramatically because of COVID that a lot of the measurements and metrics we would have used before may not hold after the fact. 

What should buyers expect? Will rates go up so quickly that people may get shut out of the market if they don’t buy now?

The Fed at its January meeting indicated — and many many market participants feel the same — that it is trying to not have to go through the pain of the temper tantrum of 2012 and 2013 again. The pain that caused in the market and the dislocation of mortgage rates and liquidity is something that the Fed and markets are learning from. If distortions happen with measures of inflation and financial stability, the Fed and policymakers will have to exert some control over those key metrics to protect infrastructure or the rate recovery is not going to be so even-keeled. Central banks, policymakers and banks are going to do everything they can to keep things on that even keel and make sure borrowers aren’t shut out. The good news is the product base is there for people across the wealth spectrum looking for mortgages, and the affordability is there because of low rates. The ability of mortgage processors to serve the millions of people applying is not going to go away any time soon.

There is some elasticity in the marketplace that the Fed and policymakers can lean on to help soften some of the blow for borrowers when rates rise. Hopefully that helps cushion the rise so it is gradual and not so sharp that it shuts down affordability and shuts down access.

What about refinancing? Should people refinance now if they haven’t? Once rates start going up, how quickly will the refi boom end?

In the current rate environment, capacity has been the main constraint. There’s only so much that every mortgage lender and bank can do. Refinances overwhelmed the pump. The hiring that has occurred across the industry and the technology efficiency that has been put in place, will help homeowners refinance while rates remain attractive. That’s my way of saying don’t wait. It may take some time for the refinance process to work through. The process is still rather lengthy given capacity and some of the constraints that are still out there in the market: appraisals, third parties etc. that may get delayed by COVID or local pandemic-related restrictions.

When you think about where recent refinancers and new mortgage applicants have locked in their rates, a small rise of 5 or 10 or 15 basis points on interest rates take a very large swath of the market out of the money. Interest rates would have to fall significantly from here before there is this massive resurgence in refinances on today’s new mortgages. Rates are attractive, people are still going to refinance, but if rates stay where they are now or slightly higher, it’s going to drop off.

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