After a series of steady increases, mortgage rates fell this week – a mixed blessing for the fragile US economy.
The lower rate on a 30-year fixed mortgage is a relief for homebuyers who have seen rates climb, but it’s also a sign that a recession could very well be around the corner as the market slows down.
Rates tend to mirror 10-year Treasury yields, which have fallen as investors seek safer and more stable assets in the face of higher inflation and slower economic growth.
“Rising prices are eating away at consumers’ paychecks, leaving many Americans with less money for discretionary spending,” says George Ratiu, senior economist at Realtor.com.
“Furthermore, with inflation outpacing wage increases, most workers are seeing their incomes fall behind, further straining the finances of buyers who also face higher borrowing costs.”
30 Year Fixed Rate Mortgages
The average 30-year mortgage rate fell to 5.70% this week from 5.81% a week ago, housing finance giant Freddie Mac reported on Thursday. A year ago at this time, the 30-year rate averaged 2.98%.
“The rapid rise in mortgage rates has finally come to a halt, largely due to the countervailing forces of high inflation and the growing possibility of an economic recession,” said Sam Khater, chief economist at Freddie Mac.
“This pause in rate activity should help the housing market rebalance itself from breakneck growth in the seller’s market to a more normal pace of home price appreciation.”
Austin realtor Lilly Rockwell says the market has already started to favor buyers and she just helped a client negotiate a purchase below the listed price.
“It’s fabulous. To finish. Tons of choices, very little competition,” she said. tweeted Thursday.
She also advised clients to apply for seller’s credits — a cash payment that the seller hands over to the buyer at closing — to help them lower their mortgage rates.
Buying out your mortgage rate means making an upfront payment to your lender to reduce your long-term interest costs, and seller’s credits can help low-income buyers take advantage of this option.
“I plan to deploy this strategy myself on a list I have coming next week and provide information on rate buybacks to proactively address interest rate concerns,” Rockwell said. . “It’s crazy how fast the tables have turned!”
15-year fixed rate mortgages
The rate on a 15-year fixed mortgage is averaging 4.83%, also down from a week ago when it averaged 4.92%. Last year at this time, the rate for a 15-year loan was around 2.26%.
With few exceptions, rates have risen for most of 2022 after two years of record highs. They have taken a particularly steep climb in recent weeks as the Federal Reserve began raising its benchmark interest rate to curb soaring inflation.
Still, analysts say it’s important to keep recent spikes in perspective.
“While rates are significantly higher than last year, they remain historically low, remaining below 6%,” says Nadia Evangelou, senior economist for the National Association of Realtors.
5 Year Adjustable Rate Mortgages
The average rate for a five-year variable rate mortgage, or five-year ARM, was 4.5% this week, up slightly from 4.41% last week. A year ago, ARMs averaged 2.54%.
Adjustable mortgage rates are tied to the prime rate. Although the interest charges start out low, they can skyrocket once the initial fixed rate period ends.
Some recent borrowers are taking out ARMs in hopes of being able to refinance into a lower fixed rate mortgage by the end of the five-year term.
How Recent Rate Swings Are Affecting the Market
Real estate activity has undeniably cooled. Nearly 12,000 fewer homes sold in April and May compared to the pre-pandemic average, according to the National Association of Realtors.
“It’s a fact that many households are impacted by higher mortgage rates because they are no longer earning the qualifying income for the median priced home,” Evangelou says.
Buying a home, she says, became 15% more expensive in the second quarter – buyers now need to earn $104,000 to qualify for a loan on a typical property.
Another change is that more owners are listing their properties compared to a year ago at this time. Prices, however, have yet to experience any significant declines.
In fact, the median home price hit a record high of $450,000 in June, up 17% from the same month last year, according to Realtor.com.
“At this price, combined with today’s fixed rate for a 30-year loan, homebuyers are looking at monthly mortgage payments of around $2,100 – before adding taxes, insurance or fees – more than $790 more than in June 2021,” Ratiu says.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.