Rates are Low, But More Borrowers Could Be Struggling with Mortgages

Just because rates are low doesn’t exactly translate to a healthy real estate market. With the nation still trying to recover from the Covid-19 pandemic, current mortgage borrowers are feeling the pangs of a strained labor market.

“After improving markedly in July, the number of borrowers struggling to make their monthly mortgage payments has essentially flatlined and now threatens to move higher,” a CNBC article noted. “As of Aug. 25, 3.9 million homeowners were in mortgage forbearance programs, according to Black Knight, a mortgage technology and analytics firm. This represents 7.4% of all active mortgages and is unchanged from the week before. The numbers have not improved in the past two weeks.”

With a number of businesses hurt by the pandemic, it’s also hurt employment — an ongoing concern even as economies continue to recover.

“The extremely high rate of initial claims for unemployment insurance and high level of unemployment remains a concern, and are indications of the challenges many households are facing,” said Mike Fratantoni, MBA’s chief economist. “While new forbearance requests remain low, particularly for Fannie Mae and Freddie Mac loans, the pace of exits from forbearance has declined for two straight weeks.”

30 Year Mortgage Rate Chart

30 Year Mortgage Rate data by YCharts

ETFs to Watch

ETFs to watch include the VanEck Vectors Mortgage REIT Income ETF (MORT). MORT seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Mortgage REITs Index (the “Mortgage REITs Index”).

MORT normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index. The Mortgage REITs Index may include small-, medium- and large-capitalization companies.

Another fund to look at is the FlexShares Disciplined Duration MBS Index Fund (MBSD). MBSD seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the ICE BofA Merrill Lynch, Constrained Duration US Mortgage Backed Securities IndexSM.

The underlying index reflects the performance of a selection of investment-grade U.S. agency residential mortgage-backed pass-through securities. The fund generally will invest under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of the underlying index and in “TBA Transactions” that represent securities in the underlying index.

In order to obtain more broad-based real estate exposure, Investors can opt for funds like the Vanguard Real Estate ETF (NYSEArca: VNQ). The fund seeks to provide a high level of income and moderate long-term capital appreciation by tracking the performance of the MSCI US Investable Market Real Estate 25/50 Index that measures the performance of publicly traded equity REITs and other real estate-related investments.

For more market trends, visit ETF Trends.