LOs on what they're seeing as interest rates tip downward

As mortgage interest rates inch down, customers have started to more actively inquire about home purchases and refinances, originators say. But that doesn't mean they're running to purchase a home or file a refi application just yet.

While there have been some recent spurts of refinance and purchase activity, most borrowers are either opting to wait for the Federal Reserve to cut rates, or are holding off until after the election, LOs say.

Alex Naumovych, loan officer at First Alliance Home Mortgage, said his purchase volume has doubled in August due to falling rates, and customers are actively inquiring about refinancing.

"I went from having about three to four purchase loans per month, to closing 11 this month," Naumovych said. "For clients looking to refinance, I advise them that there is a consensus 

in the market that rates will be cut on September 18, between 25 basis points to 50 basis points, so let's wait until that time, because right now you will refinance, then rates will get cut and get even lower. Let's not rush."

Naumovych noted that some clients have started sending documents that are needed to start the refinance process. "In September I'll start putting those applications together for refinancing, and as soon as September 18 happens, they'll get a lower rate," he added.

Other loan officers interviewed say customer interest is there, but there is also hesitancy.

Randy Howell, owner of Glendale, Arizona-based mortgage brokerage shop Mortgage Power, Inc., said borrower inquiries have notably increased at his shop. But the general consensus regarding purchases has been to wait until after the election, Howell said.

"I really think folks are just scared to finance until they see the outcome in November," he added. "I don't think the Feds lowering the rate in September is going to make the market move substantially."

The Federal Reserve has signaled that it plans to cut rates in September, though this is unlikely to cause a substantial decrease in mortgage interest rates.

Mortgage industry analysts forecast only a moderate reduction. Most recently, the Mortgage Bankers Association dropped its rate call to 6.5% for year-end 2024 and 5.9% in 2025 as compared to their July predictions of 6.6% and 6%, respectively.

Alex Margulis, a Chicago-area loan officer at CrossCountry Mortgage, also noticed increased borrower interest in refinancing and purchasing opportunities.

"But for whatever reason, the buyers are not jumping off of that proverbial fence quite yet, because they've been sitting on that fence for a while now," he said. "The only buyers that have been buying lately have been mostly first-time homebuyers."

Margulis posits the momentum hasn't shifted for current owners to exchange their 3% rates for 6% rates. Nonetheless, he believes that if rates come down to 5% homeowners may be more open to swapping their 3% mortgage for something slightly higher. 

As of Wednesday, mortgage interest rates hovered around 6.4%, according to Lender Price.

Jon Overfelt, part owner of Charlotte, North Carolina-based originator American Security Mortgage Corp., said election years have historically correlated with borrowers being reluctant to make big investments prior to seeing the outcome.

"You always have that in election years where people are on the sidelines waiting to see what's going on," Overfelt said. "I do think one of the downfalls of social media is that everybody thinks they're a mortgage expert [now]."

In reality, past trends indicate that interest rates don't significantly change based on election outcomes, Overfelt noted. "Financial markets operate independently," he said. "The financial market behaves like a living entity with its own dynamics. This political result will have some effect, but not a major one."

One potential impact could be the introduction of a federal $25,000 down payment subsidy for first-time homebuyers if Vice President and Democratic presidential nominee Kamala Harris is elected. However, some industry experts are doubtful about the feasibility of this proposal.

"Policies can affect [future originations]," said Overfelt. "Those credits are a short term fix that will drive people into the market immediately who were already going to buy a house. But rarely does it create extra demand."

Paul Hindman, mortgage industry veteran, is not surprised that customers are actively reaching out to their lenders at this point in time.

"You have to live under a rock not to know this stuff," he said. "They're calling now, but they will most likely wait until the cut and markets will move. I predict rates will be in the sub-six by the end of this."