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Mortgage rates slip for a second week — how long will the break for homebuyers last?

·4 min read
Mortgage rates slip for a second week — how long will the break for homebuyers last?
Mortgage rates slip for a second week — how long will the break for homebuyers last?

U.S. mortgage rates have fallen for the second straight week, giving homebuyers a much-needed break amid the recent surge in the cost of financing.

Investors have shifted their focus from the beleaguered stock market to Treasury bills and mortgage-backed securities, allowing mortgage rates to fall even as the Federal Reserve pushes the other way, says Joel Berner, senior economic research analyst with Realtor.com.

Still, America’s most popular home loan — the 30-year fixed mortgage — is more than two percentage points above where it was last year.

“The cost of financing a home purchased at the median listing price and current mortgage rate today compared to one year ago is $751 [a month] higher, a jump of 48% stemming from the combined impact of higher rates and home prices,” Berner says.

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30-year fixed-rate mortgages

The interest rate on a 30-year fixed mortgage averaged 5.10% this week, down from 5.25% last week, housing finance giant Freddie Mac reported Thursday. The 30-year rate averaged 2.95% a year ago.

“Mortgage rates decreased for the second week in a row due to multiple headwinds that the economy is facing,” says Sam Khater, Freddie Mac’s chief economist.

“Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods.”

With rates considerably higher than last year, and the median list price for a home reaching a high of $425,000, would-be buyers are taking a pause.

Contract signings fell for the sixth straight month in April, according to the National Association of Realtors.

“The spring real estate season has become more turbulent this year, as a trifecta of higher inflation, surging interest rates and rising prices clipped the wings of a market riding high on the overheated currents from 2021,” says George Ratiu, senior economist with Realtor.com.

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15-year fixed-rate mortgages

The average rate on a 15-year fixed home loan was 4.31% this week, also down from last week when it averaged 4.43%, Freddie Mac says. A year ago at this time, the 15-year mortgage rate was averaging 2.27%.

There’s a chance rates could fall even further.

Fears of a recession are growing amid continued uncertainty around the pandemic, the war in Ukraine and the Fed’s efforts to reverse its easy-money policies to combat inflation.

“In a recessionary time, interest rates — specifically mortgage rates — come down,” Shivani Peterson, a mortgage adviser, says on the Mortgage Reports podcast.

5-year adjustable-rate mortgages

The five-year adjustable-rate mortgage, or ARM, averaged 4.2% this week, up from 4.08% a week ago. Last year at this time, the 5-year ARM averaged 2.59%.

Interest rates on ARMs are set for a period of time and then adjust annually over the remaining term of the loan.

ARMs typically adjust in sync with the prime rate — and borrowers should understand that they can go up sharply once the adjustments begin. That said, these loans usually have lower initial interest rates.

If you’re not planning to own your home for long, ARMs can be a good option. And if rates fall, you could always consider refinancing into a longer-term loan with a lower rate.

When will refinancing pick up again?

Should the economy fall into a recession and mortgage rates plunge yet again, homeowners would have a chance to trade in their expensive loans for cheaper ones.

“We would see the opportunity for many people who would like to refinance or take advantage of these lower interest rates to purchase property again,” Peterson says.

For now, though, the refi boom is over.

Applications to refinance home loans have fallen in nine of the past 10 weeks, said Joel Kan, vice president of economic and industry forecasting for the Mortgage Bankers Association, earlier this week. Compared to January, refi activity is down 66%.

“Higher mortgage rates are also impacting purchase market conditions, as the purchase index remained close to lows last seen in the spring of 2020 when a significant portion of activity was put on hold due to the onset of the pandemic,” Kan said.

“Currently, higher rates, low inventory and high prices are keeping prospective buyers out of the market.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.