After bouncing back and forth for weeks due to conflicting economic indicators, the average mortgage rate climbed back up to 6.39% last week, according to Freddie Mac.
“The economy remains on fragile footing, and a US default would cause an interest rate spike that could erase any progress towards a healthier housing market by cutting deeper into home sales,” said Hannah Jones, economic research analyst at Realtor.com.
President Joe Biden is currently looking to lift the $31.4 trillion debt ceiling in order to avoid a default, but Jones says the longer the ceiling goes without a raise, the more likely Americans will be affected by higher interest rates.
“The sooner the debt impasse is resolved, the less likely it is to negatively affect households already plagued by high prices,” Jones said.
30-year fixed-rate mortgages
The 30-year average fixed rate edged up to 6.39% last week, compared to last week’s average of 6.35%. A year ago at this time, the rate averaged 5.25%.
“With a 6.4% rate, the typical buyer can afford to purchase a home up to $380,000 — $9,000 or 2% less than the median-priced home if they put 20% down,” said Nadia Evangelou, senior economist at the National Association of Realtors (NAR), noting that about 45% of listings are in this price range.
“For buyers who decide to put 14% down — the median down payment in 2022 — they will need to look for less expensive homes up to $355,000.”
Evangelou expects the 30-year fixed rate to stabilize near 6% in the second half of the year, as inflation is slowing and the Fed is expected to pause its series of hikes to the federal funds rate soon.
15-year fixed-rate mortgages
The average rate on a 15-year home loan remained unchanged from the previous week, at 5.75%. At this time a year ago, the 15-year fixed rate averaged 4.43%.
There’s also been a dip in down payments, according to Realtor.com. This indicates it’s becoming more difficult for buyers to keep up with costs — plus a less competitive housing market could be opening doors for buyers making somewhat smaller down payments — said Danielle Hale, chief economist at Realtor.com.
“The real estate market is a glass half-full, half-empty story for first-time homebuyers,” wrote Hale.
“A drop in market competitiveness and easing down payments open the door a bit wider, but the hurdles to entry are still quite high for first-timers who don’t have existing home equity to leverage for a downpayment.”
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Home prices post biggest annual drop in over a decade
The national median existing-home price slumped by 1.7% in April from the previous year to $388,800 — the biggest year-over-year price decline since January 2012 — according to NAR.
This doesn’t mean prices are on a downward trend across the country, however. While prices are retreating in the southern and western regions, they’re still rising in the northeast and midwest parts of the country.
Existing-home sales also fell 3.4% from last month, and 23.2% since April of last year.
“Home sales are bouncing back and forth but remain above recent cyclical lows,” said NAR chief economist Lawrence Yun.
“The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
Mortgage applications sink to lowest level in a month
Mortgage demand declined 5.7% last week to the lowest level in a month, according to the Mortgage Bankers Association (MBA).
“Buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remaining scarce,” says Joel Kan, vice president and deputy chief economist at the MBA.
Refinance activity also dropped by 7% — and was 43% lower than the same week a year ago.
“Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive,” explained Kan.
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