20-Aug-19 – Home buyers and families planning to refinance this autumn had better buckle their seat belts because the housing market may be in for a bumpy ride.

While home loan interest rates are sinking to bargain levels, analysts say the United States economy could be on the verge of a recession, the first downturn in more than a decade.

On August 15, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed rate home loan interest rates were hovering at 3.60 percent, unchanged from a week earlier.

Following the Federal Reserve’s move to lower rates on July 31, the key 10-year Treasury bond rate, a driver of long-term home loan rates, has continued to fall from 1.71 percent to a rock bottom 1.52 percent on August 16.

For the first time since the run-up to the Great Recession, yields on short-term U.S. bonds eclipsed those of long-term bonds. Experts say this means that investors are losing confidence in the outlook for the economy and rushing to buy longer-term bonds. So, the federal government is paying a higher interest rate to attract investors to its short-term bonds rather than long-term bonds.

Meanwhile, benchmark 30-year fixed home loans plummeted to an average of 3.6 percent on August 8, down from 3.75 percent a week earlier, reported Freddie Mac. On August 16, Chicago lenders were charging a range of 3.555 to 3.575 percent on 30-year fixed loans, reported RateSeeker. A year ago, 30-year fixed loans averaged 4.53 percent.

The current benchmark 3.6 percent rate is the lowest mortgage rates have fallen since November 21, 2012, when they tumbled to a historical rock bottom of 3.31 percent, according to Freddie Mac.

So, if you are planning to buy a home or refinance a high-rate mortgage, what’s to worry? Well, analysts are wringing their hands about the home sales slump in June in Chicago and across Illinois, which was the worst so far this year.

Based on Illinois REALTORS data, existing home sales between June 2018 and June 2019 declined 11.2 percent in Illinois (16,579 units), 13.3 percent in the Chicago metro area (12,002 units), and 11.6 percent in the city of Chicago (2,766 units).

Then there’s the recent stock market slump. The Dow Jones Industrial Average fell a whopping 800.49 points – three percent – on August 14 and has lost close to seven percent in the past few weeks.

Analysts said the sharp stock market sell-off was caused by a rare development in the bond market, a so-called inverted yield curve that often is a harbinger of a recession. This phenomenon, which points to a lack of investor faith in the economy, has preceded every recession over the past five decades.

“The sound and fury of the financial markets continue to warn of an impending recession,” said Sam Khater (right), Freddie Mac’s chief economist. “However, the silver lining is mortgage demand reached a three-year high last week.”

Khater says the decline in mortgage rates over the last month is causing a spike in refinancing activity. “Homeowners currently have $2 trillion in conventional mortgage loans that are in the money. This will help support consumer balance sheets and increase household cash flow. On top of that, purchase demand is up seven percent from a year ago.”

What does all this high-finance mumbo-jumbo mean to the average home purchaser or the family seeking to refinance?

Experts say the current mortgage rate environment may be fleeting, so would-be buyers and refinancers should move quickly to lock in affordable interest rates before a recession strikes. Ask your lender for a float-down option in case the Federal Reserve lowers rates further at its next meeting in September.