Mortgage Refinancings Hit Record High as Economy Sputters
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Money Briefing for Wednesday, September 9th. I'm J.R. Whalen for The Wall Street Journal. The economy during the pandemic has been a study in contrasts. Job losses have left many Americans struggling to pay the bills. At the same time, the mortgage market is booming, thanks in part to a wave of refinancings.
I talked to one family whose payments went down from about $2,000 a month to about $1,500 a month. And obviously that gives them money to save and also put into other expenses.
Our reporter Orla McCaffrey will explain what's behind the refinancing trend and how it could affect the overall economy. That's after the break.
Big parts of the economy are struggling to get back on track amid the pandemic. But one area that hasn't lost its footing is the housing market. Low mortgage rates have pushed loan activity for refinancing to its highest level in two decades. Our reporter Orla McCaffrey is here with the details. So, Orla, what kinds of numbers are we talking about here with regard to refinancing?
Sure. So the numbers in the second quarter were really significant. The second quarter of 2020 was the best for mortgage originations, the best quarter on record. Almost $1.1 trillion in mortgages were originated, which is significant because in all of last year, there were only $2.5 trillion in mortgages originated. So the fact that we're almost halfway to that point in just three months of 2020 is significant.
And if homeowners go down this path, they could save a good amount of money.
At this point, you can save upwards of a percentage point. I talked to one family whose payments went down from about $2,000 a month to about $1,500 a month. And obviously that gives them money to save and also put into other expenses, specifically for this family, guitar lessons and swim lessons for their kids who are doing school from home this fall.
You know, this seems like a tale of two housing markets, especially when you look at what renters are going through.
If you have the resources, the financial resources to weather what's going on right now, if you have a job when you can work from home, if you have some savings to get you through, you can really take advantage of refinancing an asset like a house if you have one. But for renters, for people even trying to make the transition from renting to home ownership, things have gotten a lot harder as lenders have tightened credit scores and things like that. Yeah, millions of people are facing eviction right now. So... It is a very stark contrast from this booming mortgage market.
So refinancings are way up. Have the low rates boosted home purchases?
So purchases are down. We're down in the second quarter about 8% year over year. But that's actually not that much considering the sharp drop off in sales we saw in April and May specifically. So they really have recovered quite a bit. June was a good month for home sales. And then last month in July, home sales rose by almost 25%, which is the largest monthly gain on record. So you really see some of that demand you would typically expect in the spring that was kind of covered up this year coming back into the housing market right now.
And what are economists saying about how low rates might affect the overall economy?
It's kind of ironic because the uncertainty in the economy and expectations by investors, by consumers, by the Fed, by everyone basically for the economy to go through a slow recovery, that's what's causing these low rates, the economic uncertainty. But at the same time, these low rates allow the sector of the economy, the housing market, to kind of stay afloat and allow those who can benefit from it to get really good deals to borrow at a cheaper cost. Some of the conventional wisdom is that the housing market could spur recovery for the economy, but that isn't likely to happen until purchases become a greater share of mortgage originations over refis, which are by far the leader right now. And that's because of the value add you get from each origination.
So with a purchase, you spend a lot more.
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