Time to Refinance? The 4% Mortgage Is Back

Summary

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WSJ Your Money Briefing: “Time to Refinance? The 4% Mortgage Is Back”

Date: March 29, 2019
Host: J.R. Whalen
Guest: Ben Isen, Wall Street Journal Markets Reporter

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Episode Overview

This episode of Your Money Briefing examines the significant drop in mortgage interest rates—now averaging close to 4%—and what it means for homebuyers, homeowners considering refinancing, and the broader housing market. Host J.R. Whalen and WSJ markets reporter Ben Isen break down the latest trends in mortgage rates, ongoing affordability issues, regional disparities in home prices, and the impact on banks and the housing industry.

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Key Discussion Points & Insights

1. Recent Drop in Mortgage Rates

• Sharp Decline Observed: Mortgage rates have fallen rapidly, from around 5% in November 2018 to 4.06% at the episode’s recording.

• Direct Impact:

  “Last week he was quoted 4.375%. And he checked back this week and he was at 3.99%.” — Ben Isen (02:56)

• Why the Drop?

  • Lower yield on the 10-year Treasury note is pulling down rates.
  • The Federal Reserve is pausing interest rate hikes.
  • Economic uncertainty is contributing to lower yields.

  “What you've really seen is the yield on the ten year treasury note, which is sort of what guides the mortgage rate, has really fallen a lot over the last couple days.” — Ben Isen (02:56)

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2. Lingering Housing Affordability Challenges

• Rising Home Prices: Despite lower mortgage rates, many Americans still find ownership out of reach.

• Statistics: Nearly three-quarters of people earning an average wage would find home ownership unaffordable in their county.

• Wage vs. Home Price Growth: Home prices have increased faster than wages, deepening the affordability crisis.

  “Home prices have really kind of risen a lot over the last few years and affordability has become an issue… almost three quarters of people who earn an average wage would find home ownership unaffordable based on the counties they live in.” — Ben Isen (03:38)

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3. Regional Differences in Affordability

• Most Unaffordable Areas:

  • Expensive coastal cities: Los Angeles, San Diego, Orange County, Miami, Phoenix.

• More Affordable Markets:

  • Midwest cities and places with slower growth: Detroit, Cleveland, Houston.

  “The kind of more expensive coastal areas are where you're seeing things become particularly unaffordable... places that are still kind of more affordable are more in the Midwest.” — Ben Isen (04:12)

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4. Implications for Homebuyers and the Mortgage Industry

• Barrier to Entry: For many, the main challenge is still saving enough for a down payment, not just qualifying for a loan.

  “You still have to come up with the money to buy a house... home prices have increased way faster than wages, which makes it just increasingly unaffordable for someone to buy.” — Ben Isen (04:52)

• Potential Opportunity: Those who can afford to buy or refinance stand to benefit from the lower rates.

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5. Effects on Banks and the Housing Sector

• Mixed Impact on Banks:

  • Lower rates can revive mortgage originations, which is good for lenders.
  • However, sustained lower rates can compress banks’ lending margins overall.

  “It's going to be a bit of a reprieve for some of these folks who are in the business of making mortgages. That said, falling rates is not always a good thing for banks generally.” — Ben Isen (05:30)

• Homebuilder Stocks: Could benefit if lower rates spur more home buying and construction to increase inventory.

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Notable Quotes & Memorable Moments

• On the rapid rate change:

  “You had mortgage rates around 5% back in November and since then they've really taken a dive… They're down at 4.06%. So pretty close to 4.” — Ben Isen (02:34)

• On affordability and economic impact:

  “That's sort of one of the biggest challenges to the economy broadly, but also to the housing market, which is just that home prices have increased way faster than wages.” — Ben Isen (04:52)

• About the window of opportunity:

  “This window of opportunity for the mortgage industry might evaporate as quickly as it came.” — Ben Isen (05:30)

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Useful Timestamps

• 02:34: Ben Isen explains the swift decline in mortgage rates.
• 02:56: Real-world example of a borrower seeing big swings in rate quotes.
• 03:38: Discussion on affordability and home price increases.
• 04:12: Breakdown of most and least affordable U.S. housing markets.
• 04:52: Examination of the down payment barrier and wage-price gap.
• 05:30: Effect of falling rates on banks and mortgage lenders.

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Tone & Style

The conversation remains conversational, data-driven, and insightful, mixing economic context with personal finance guidance. Both host and guest are factual and accessible, demystifying mortgage finance for average listeners without oversimplifying the nuances.

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Transcript

[Charles Schwab Podcast Host]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] Washingtonwise.

[J.R. Whalen]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Have you thought about refinancing your house or apartment? Now could be an ideal time, with mortgage interest rates on the way down again. But how long will rates stay low? We'll hear from the Journal's markets team in a moment. First, these money and market stories you should know Robocalls have become public enemy number one for some people, and an estimated 48 billion unwanted robocalls were made to US mobile phones last year. So what about that Do Not Call registry? Well, the ftc, which runs the Do Not Call Registry, has fined violators of the registry about $1.5 billion since 2014, and it's collected about $121 million of that total. Meanwhile, the FCC hasn't been as effective in collecting from the robo bad guys. It's levied about $208 million in fines since 2015, but so far has only been able to collect about $6,800. Both agencies tell the Wall Street Journal there are challenges to collecting penalties. For one, small, illegal operations can quickly close up shop and change their names. And some are based overseas, making it difficult to identify or seize assets. And the Journal's Real Estate Bureau reports that actor Bruce Willis has put his sprawling beachfront compound and Turks and Caicos on the market for $33 million. Willis bought the seven acre property in 2000 and completed the home in 2004. It's a roughly 13,500 square foot Asian inspired compound with with five bedrooms across the main house and two adjacent smaller homes known as casitas. If you decide to buy, you get a shaded yoga pavilion along with banana, coconut and papaya trees. And for the kids, an area for beach volleyball along with a pirate ship playground. How does a 4% mortgage rate sound to you? Well, how about even lower? That's where we are now. The housing market is one of the most closely watched gears of the economy, and Journal Markets reporter Ben Ison is here to go inside the numbers with us. So Ben, it wasn't all that long ago that mortgage rates were averaging up near 5%.

[Ben Isen]

Yeah, you had mortgage rates around 5% back in November and since then they've really taken a dive. And especially in the last week you've really seen mortgage rates fall now. They're down at 4.06%. So pretty close to 4.

[J.R. Whalen]

And you spoke to a gentleman in Connecticut who got two very different mortgage rate quotes in just the span of a week.

[Ben Isen]

Yeah, last week he was quoted 4.375%. And he checked back this week and he was at 3.99%. So what you've really seen is the yield on the ten year treasury note, which is sort of what guides the mortgage rate, has really fallen a lot over the last couple days. You have that happening as the Federal Reserve takes a pause on interest rate increases. And there's also kind of some concern about the pace of the economy. So you have all of that contributing to pressure on the 10 year treasury yield. And with that, mortgage rates have really just kind of shot down.

[J.R. Whalen]

Now, even though the mortgage rates have come down and that could be good for home buyers, the housing market faces still some obstacles.

[Ben Isen]

It's true, you have. Home prices have really kind of risen a lot over the last few years and affordability has become an issue. You know, it's been an issue for the last decade, but especially now, after all the home price appreciation we've seen by one analysis that we looked at, pretty much almost three quarters of people who earn an average wage would find home ownership unaffordable based on the counties they live in. And that's definitely a big obstacle.

[J.R. Whalen]

So where are some of the areas where housing prices are really out of control and not seen as being affordable? And then there are places where housing is more affordable.

[Ben Isen]

This is sort of a long running trend here, which is what contributes to the unaffordability of housing. But the kind of more expensive coastal areas are where you're seeing things become particularly unaffordable. Places like Los Angeles, San Diego, Orange County, Miami, also Phoenix. Whereas the places that are still kind of more affordable are more in the Midwest, places that haven't experienced as rapid growth. Places like Detroit, Cleveland, Houston is still affordable based on this measure.

[J.R. Whalen]

And so while the mortgage rates are pretty attractive, you still have to come up with the money to buy a house. And there are people, I'm sure listening to this or know, people who say, you know, if I could only buy a house, I could actually get in and take advantage of these rates.

[Ben Isen]

Yeah, absolutely. I mean, I think that's sort of one of the biggest challenges to the economy broadly, but also to the housing market, which is just that home prices have increased way faster than wages, which makes it just increasingly unaffordable for someone to buy you just don't earn as much money to keep up with the rising home prices.

[J.R. Whalen]

Now let's go back and bring the focus back to mortgage rates. And we talked about mortgage rates coming down near 4%. And that's an average. That's a nationwide average. You're going to find above that and rates below that. But from an investment standpoint, it could be good for home building stocks if the housing inventory needs to go up to serve more buyers. But is it good for the banks?

[Ben Isen]

It depends. It could be good for the banks because banks and also non bank mortgage lenders have really struggled a lot as you've seen rates rise and mortgage origination volume kind of fell off. So it's going to be a bit of a reprieve for some of these folks who are in the business of making mortgages. That said, falling rates is not always a good thing for banks generally. It just makes it harder to earn income from lending. So we'll have to see. And it kind of depends how long rates stay this low. You know, rates bounce around all the time, so kind of this window of opportunity for the mortgage industry might evaporate as quickly as it came.

[J.R. Whalen]

All right, That's Wall Street Journal markets reporter Ben Isen here in our studio. Ben, thanks for coming on the show.

[Ben Isen]

Thanks a lot.

[J.R. Whalen]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[Charles Schwab Podcast Host]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonWise.