After a series of steady increases, mortgage rates fell this week – a mixed blessing for the fragile US economy.
The drop in the 30-year fixed-rate mortgage is a relief to home shoppers who have been watching prices rise, but it’s also a sign that a recession may be around the corner as the market slows.
The rates tend to reflect 10-year Treasury yields, which have fallen as investors seek safer and more stable assets in the face of rising inflation and slowing economic growth.
“Rising prices are eroding consumer salaries, leaving many Americans with less money for discretionary spending,” says George Ratio, chief economist at Realtor.com.
Additionally, as inflation outpace wage increases, most workers see their incomes decline, further straining the finances of buyers who also face higher borrowing costs.
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30-year fixed-rate mortgage
The 30-year average mortgage rate fell to 5.70% this week, down from 5.81% a week ago, housing finance giant Freddie Mac reported Thursday. A year ago at this time, the 30-year average was 2.98%.
“The rapid rise in mortgage rates has paused, largely due to the compensatory forces of high inflation and the increased likelihood of an economic recession,” says Sam Khater, chief economist at Freddie Mac.
“This pause in price activity should help the housing market rebalance from the rapid growth of the seller’s market to a more normal pace of home price increases.”
Austin real estate agent Lily Rockwell says the market has already begun to favor buyers and she has helped a client negotiate a below-list price purchase.
“It’s awesome. Finally. Tons of options, a bit of competition,” she chirp Thursday.
It also advises customers to request seller credits – a cash payment the seller gives to the buyer at closing – to help them lower mortgage rates.
Buying your own mortgage rate means making a down payment to your lender to reduce long-term interest costs, and seller credits can help light buyers take advantage of this option.
“I plan to publish this strategy myself on a list I will put out next week and provide some interest rate buying information just to proactively address concerns about interest rates,” Rockwell said. “It’s crazy how quickly the tables have turned!”
15 Years Fixed Return Mortgages
The average 15-year fixed-rate mortgage rate was 4.83%, also down from last week when it was 4.92% on average. At this time last year, the 15-year loan rate was about 2.26%.
With a few exceptions, rates are up for most of 2022 after two years of record lows. They have taken a particularly sharp rally in recent weeks as the Federal Reserve began raising its benchmark interest rate to curb high inflation.
However, analysts say it is important to keep the recent rallies in perspective.
“Although rates are much higher than last year, they are still historically low, remaining below 6%,” says Nadia Evangelo, chief economist at the National Association of Realtors.
5 year adjustable mortgage
The average five-year adjustable-rate mortgage rate, 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 linked to the base rate. While interest costs start low, they can rise once the initial fixed rate period is over.
Some new borrowers are taking on ARM in the hope that they will be able to refinance into a lower, fixed mortgage by the time the five-year period ends.
How recent price fluctuations affect the market
Housing activity has been undeniably cooled. Nearly 12,000 fewer homes sold in April and May than the pre-pandemic average, according to the National Association of Realtors.
“It’s a fact that many families are affected by high mortgage rates because they are no longer earning the qualifying income for a mid-priced home,” Evangelo says.
It says home buying became 15 percent 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 homeowners are listing their properties compared to last year at this time. However, prices did not see any significant declines.
In fact, the median home price hit a record $450,000 in June, up 17% from the same month last year, according to Realtor.com.
At this rate, combined with today’s flat rate for a 30-year loan, homebuyers are looking at monthly mortgage payments of about $2,100 — before taxes, insurance or fees are added — more than $790 more than in June of 2021, says Ratiu. “.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.