Home ownership just fell 5% as mortgage rates plummet

Home ownership just fell 5% as mortgage rates plummet

U.S. mortgage rates fell sharply for a second straight week as monetary policies designed to slow the economy weighed on the housing market.

The rate on the popular 30-year fixed mortgage hasn’t fallen this much since December 2008, a new report shows.

Although rates have been rising for most of this year, recent declines offer a glimmer of hope for buyers.

Buying a home is now about 5 percent more affordable than it was a week ago, said Nadia Evangelou, senior economist at the National Association of Realtors.

That means a savings of about $100 on a typical monthly mortgage payment.

Do not miss

30 year fixed rate mortgages

The average 30-year fixed mortgage rate fell to 5.30 percent this week from 5.70 percent a week ago, mortgage finance giant Freddie Mac said Thursday. A year ago, the 30-year interest rate averaged 2.90%.

“Over the past two weeks, the 30-year fixed-rate mortgage has fallen half a percent as concerns about a potential recession continue to grow,” said Sam Khater, chief economist at Freddie Mac.

The Federal Reserve, which is trying to reduce inflation by cooling the economy, raised its benchmark interest rate by three-quarters of a percentage point in June.

The central bank is likely to make another hike of the same magnitude when it meets again later this month, according to minutes from the Fed’s meeting last month.

15-year fixed-rate mortgages

The 15-year fixed-rate mortgage averaged 4.45 percent this week, down from 4.83 percent last week, Freddie Mac says. Last year at this time, the 15-year rate averaged 2.20%.

Higher borrowing costs reduce housing demand and the market is readjusting.

“Home price growth has begun to slow and price reductions are becoming more common as sellers finally face challenges and begin to revise their expectations,” Matthew Speakman, senior economist at Zillow, said in a recent an interview.

The story continues

Indeed, homeowners are being forced to change their mindset.

While many new listings still sell within days, multiple-offer situations are fewer and farther between, says Corey Burr, a real estate agent in Washington.

The seller must be prepared to make adjustments if a property does not go under contract within two weeks of being listed.

“In these cases, we’re seeing more broker commission incentives, more seller offers to help pay the buyer’s closing costs and outright price reductions,” says Burr, senior vice president at TTR Sotheby’s International Realty.

5 year variable rate mortgages

The five-year adjustable-rate mortgage (ARM) averaged 4.19% this week, down from 4.50% last week. A 5-year ARM averaged 2.52% a year ago.

ARMs, which vary based on the prime rate, start out with lower interest costs. However, they can increase after the initial fixed rate period is over.

Despite recent drops in interest rates, fewer Americans are taking out new mortgages.

Applications fell 5.4%, according to the latest weekly survey by the Mortgage Brokers Association (MBA).

“Rates are still significantly higher than they were a year ago, so applications for home purchases and refinancing remain depressed,” said Joel Kahn, MBA’s associate vice president for economic and industry forecasting.

When will housing prices start to fall?

The median home price hit a record $450,000 in June, up 17% from last year, according to Realtor.com.

That leaves little room for shoppers on a budget.

Although prices are expected to soften, they have yet to make any tangible moves, according to researchers from Florida Atlantic University (FAU) and Florida International University.

Median prices are still rising in nearly all of the 100 largest housing markets, they found. However, evidence suggests that the market may be nearing its peak.

“There are many reports that mortgage applications and home showings decline as interest rates rise,” Ken Johnson, an economist at FAU’s College of Business, said in a new report.

“We expect prices to level out eventually as well, especially if a recession occurs and interest rates remain high.”

What to read next

• Get the latest personal finance news delivered straight to your inbox with the MoneyWise newsletter

• Mitt Romney says billionaire tax will trigger demand for these two physical assets – get in now before the super rich pile in

• Bill Gates just won legal approval to buy 2,100 acres of North Dakota farmland worth $13.5 million — and people are ‘furious’

This article provides information only and should not be construed as advice. Provided without any warranty.