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The pandemic hit the mortgage sector – like most businesses and industries – with a series of unknowns: Can the industry operate remotely and still comply with regulations? Will credit standards tighten? Will there be any purchase activity?
Most concerns were quickly resolved as the industry not only adapted to the pandemic but found homeowners seeing opportunities to refinance with historically low interest rates and buyers looking for new homes, leading to volumes above what lenders had expected at the start of the year.
“There have been plenty of years where we had a lot of refinances, plenty of years where we had a lot of purchases,” said Marc Nathan, a senior mortgage banker with Total Mortgage in West Hartford. “But there’s not too many that I can think of where we’ve had this much volume of purchases and refinances at the same time – it’s just been incredible.”
Connecticut had $25.7 billion in residential mortgage activity during the first nine months of 2020, a 68.7 percent increase over the same time period in 2019, according to data from The Warren Group, publisher of The Commercial Record.
Refinance activity in Connecticut more than doubled to $16 billion during the first nine months of 2020, and purchase activity increased by 20 percent to $9.6 billion.
Historically Low Rates
Interest rates have been a key driver of mortgage activity in 2020. Rates in 2019 had started off more than a point higher than what borrowers would find a year-and-a-half later. The average interest rate in January 2019 on a 30-year, fixed-rate mortgage was 4.51 percent, according to Freddie Mac, while the average rate for a 15-year, fixed-rate loan at the start of 2019 was 3.99 percent
By January 2020, the average interest rate on a 30-year, fixed-rate mortgage was 3.72 percent and six months later was at 3.07 percent. By the end of September, it was at 2.88 percent. The average rate for a 15-year, fixed-rate loan slid from 3.16 percent in January 2020 to 2.56 percent in June and 2.36 percent in September.
Before the pandemic, Nathan expected that the already low rates and a good economy could drive strong mortgage volumes in 2020, similar to those he had seen in 2019. Good weather in January and February meant that his spring market got an even earlier start in 2020.
“Overall, we were definitely optimistic, and I was excited for spring,” Nathan said.
When the pandemic hit, Nathan, like people in most industries, questioned how it would affect his business. While he expected lower rates to drive refinances, purchase activity got off to a slow start as Realtors worked through their processes.
He soon found both a boom of refinance activity and typical spring purchase market volumes.
“Our foot’s been on the gas pedal since early March,” Nathan said, noting that his business has increased about 40 percent in 2020.
Much of his team’s refinance activity has come from existing clients and referrals, Nathan said, rather than targeted outreach campaigns. He added that he maintains regular contact with his clients, including through monthly emails that keep them informed of what’s been happening during the pandemic.
John Hodgkins, branch manager at Guaranteed Rate’s West Hartford office, also did not seek out refinance activity, working instead with existing clients and referrals. While his team typically focuses on the purchase market, Hodgkins said Guaranteed Rate locked in the rates long enough to satisfy clients and give his team flexibility in working through the process.
Motivated Buyers
Despite the economic uncertainty brought on by the pandemic, the purchase market has been strong throughout Connecticut. In Hartford County, Nathan said, homebuyers have been looking for affordable alternatives to living in New York and Boston now that remote working opens up more options for where people live. Families have also been seeking larger houses for home offices and at-home learning.
These buyers in Hartford County’s purchase market right now are not the ones looking around and planning to make an offer only if they find their perfect house, Hodgkins said.
Instead, with low inventory and multiple offers on most homes, Hodgkins said, they are both educated – through Realtors and their own research – about the market and emotionally prepared to buy.
“Buyers right now, they have the amped emotion – they are coming into this market with their track shoes on,” he said. “In my mind, buyer awareness is at a peak, and honestly, to play in the Hartford market, it has to be.”
The Hartford area’s purchase market has also affected what borrowers expect from their mortgage companies. Some borrowers who were preapproved for a certain loan amount have needed to increase the limit to place a competitive bid, Hodgkins said, adding that he has never seen an environment where buyers consistently expect to pay more than the list price.
They also expect responses from the mortgage team as soon as they are ready to make an offer, regardless of the day or time.
“The challenge is keeping your team rested to respond to the expectation,” Hodgkins said. “And the expectation in the market right now is N-O-W – and fast.”
Hodgkins said purchase mortgage activity in some of the more rural areas have operated at a typical pace, but even places outside Hartford County, like Tolland and Ellington, have seen homebuyers needing to move quickly.
“I’ve never seen a seller’s market so pure as it is right now,” Hodgkins said. “Since the pandemic, the effects of low inventory are here.”
