After a series of steady increases, mortgage rates fell last week, a mixed blessing for the fragile US economy.
The lowest rate in 30 year fixed mortgage it’s a relief for homebuyers who have been seeing rates rise, but it’s also a sign that a recession could be just around the corner as the market slows.
Rates tend to mirror 10-year Treasury yields, which have fallen as investors seek safer, more stable assets in the face of higher inflation and slower economic growth.
“Rising prices are taking a toll on consumers’ paychecks, leaving many Americans with less money for discretionary spending,” says George Ratiu, senior economist at realtor.com.
“In addition, with inflation outpacing wage increases, most workers are seeing their incomes shrink, putting further pressure on the finances of shoppers who are also facing higher borrowing costs.”
do not miss
30-year fixed-rate mortgages
Average 30-year mortgage rate fell to 5.70% last week, down from 5.81% a week earlier, home news block giant Freddie Mac reported Thursday. A year ago at this time, the 30-year rate averaged 2.98%.
“The rapid rise in mortgage rates has finally ground to a halt, largely due to the offsetting forces of high inflation and the growing possibility of an economic downturn,” says Sam Khater, chief economist at Freddie Mac.
“This pause in rate activity should help the housing market rebalance from the breakneck growth of the sellers’ market to a more normal pace of home price appreciation.”
Austin real estate agent Lilly Rockwell says the market has already started to favor buyers and she just helped a client negotiate a purchase below list price.
“It’s fabulous. Finally. Tons of options, very little competition,” he said. tweeted Thursday.
He has also been advising clients to apply for seller credits, a cash payment the seller gives the buyer at closing, to help them lower their mortgage rates.
Lowering your mortgage rate means making an upfront payment to your lender to lower your long-term interest costs, and seller’s credit can help cash-strapped buyers take advantage of the option.
“I plan to implement this strategy myself in a stock price release next week and provide information on the rate cut to proactively address interest rate concerns,” Rockwell said. “It’s crazy how quickly the tables have turned!”
15-year fixed-rate mortgages
The rate on a 15-year fixed mortgage averaged 4.83%, also down from the previous week when it averaged 4.92%. Last year around this time, the rate on a 15-year loan hovered around 2.26%.
Aside from a few exceptions, rates have been rising for most of 2022 after two years of record lows. They had a particularly strong rise in recent weeks as the Federal Reserve began raise your benchmark interest rate to curb skyrocketing inflation.
Still, analysts say it’s important to keep recent spikes in perspective.
“Although rates are significantly higher than last year, they are still historically low, hovering below 6%,” says Nadia Evangelou, senior economist at the National Association of Realtors.
5 year adjustable rate mortgages
The average rate on a five-year adjustable-rate mortgage, or five-year ARM, was 4.5% last week, up slightly from 4.41% the week before. A year ago, ARMs averaged 2.54%.
Adjustable mortgage rates are tied to the prime rate. While interest costs start low, they can rise once the initial fixed-rate period ends.
Some recent borrowers are taking out ARMs in the hope that they can refinance into a lower fixed-rate mortgage by the time the five-year term expires.
How the recent rate swings are affecting the market
It is undeniable that real estate activity has cooled down. About 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 affected by higher mortgage rates because they no longer earn the income that qualifies for a median-priced home,” says Evangelou.
Buying homes, he says, became 15% more expensive in the second quarter, and 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 see any significant drops.
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 that price, combined with today’s fixed rate for a 30-year loan, homebuyers are looking for monthly mortgage payments of about $2,100, before adding taxes, insurance or fees, more than $790 more than in June 2021,” says Ratiu.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.