Mortgage rates are still falling as the Fed announced another quarter-point rate hike last week — and indicated increases may be nearing their long-awaited end.
In the meanwhile, the homebuyer front is seeing “improved purchase demand and stabilizing home prices,” says Freddie Mac chief economist Sam Khater.
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“If mortgage rates continue to slide over the next few weeks, look for a continued rebound during the first weeks of the spring homebuying season.”
Khater and other experts are anticipating more buyers will return to the market as rates become more affordable. However, that doesn’t mean housing prices are going to subside anytime soon.
30-year fixed-rate mortgages
The average 30-year fixed rate slid further to 6.42% last week, compared to last week’s average of 6.60%.
A year ago at this time, a 30-year home loan averaged 4.42%.
“With rates below 6.5%, more Americans can purchase the median-price home by putting 18% down without being cost-burdened,” says Nadia Evangelou, senior economist for the National Association of Realtors (NAR).
Evangelou anticipates the housing market to rebound even faster than expected if mortgage rates continue their decline this spring.
15-year fixed-rate mortgage rate trend
The average rate on a 15-year home loan tumbled from 5.90% to 5.68% last week. This time a year ago, the 15-year fixed-rate averaged 3.63%.
Hannah Jones, economic research analyst at Realtor.com, notes that despite the Fed’s softened stance on additional rate hikes, the federal funds rate will still remain fairly high — “meaning that a higher interest rate environment is here to stay for the time being, including for home loans.”
Jones says that while buyer demand is increasing due to slightly lower financing costs, many Americans are still grappling with affordability challenges.
“At the current price and mortgage rate level, the typical housing payment on a median-priced home is still 36.4% higher than one year ago.”
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U.S. home sales pick up in February
There was an unexpected uptick in new home sales in February, inching 1.1% from January to an annual pace of 640,000 new home sales, reports Realtor.com. This is still 19% lower compared to the housing market a year ago, but sales may continue to rise as mortgage rates fall.
“Higher mortgage rates are the new normal, which leaves home shoppers measuring their willingness to participate in the market with each change in rates,” writes Jones.
She adds that sales activity is becoming increasingly concentrated toward new homes that haven’t been started yet — making up about 23% of new home sales in February, compared to 17% in January — suggesting that “buyers are looking to lock in a good deal now, before construction has started.”
Although lower mortgage rates signal increased affordability, the median new home sale price climbed to $438,200 last month — 2.5% higher than the same period last year.
“As long as the housing market remains undersupplied, buyer competition will put upward pressure on prices,” explains Jones.
Mortgage applications continue to rise
Demand for mortgages rose 3% from the previous week, according to the Mortgage Bankers Association (MBA).
Homeowners have also been more encouraged to refinance — thanks to lower rates — with the refinance index climbing 5% since the week prior.
“Both purchase and refinance applications increased for the third week in a row as borrowers took the opportunity to act, even though overall application volume remains at relatively low levels,” says Joel Kan, vice president and deputy chief economist at the MBA.
Kan notes that mortgage rates haven’t plunged as drastically as Treasury rates due to increased volatility in the mortgage-backed securities market.
What to read next
Despite the economy starting to move in the right direction, high home prices are still preventing many prospective buyers from signing on the dotted line.
If you’re not quite ready to buy or sell your home just yet, there are other lucrative ways to cash in on the current market.
One option is to invest in prime commercial real estate, which has outperformed the S&P 500 over a 25-year period. It’s an alternative to the stock market that can act as a hedge against inflation, produce consistent income and diversify your portfolio.
With the help of new online platforms, you can invest in professionally-vetted real estate without having to pay for a property in full.
Investors can do everything online from investment screening to signing legal documents and tracking your investment’s performance — and you don’t need to be a millionaire to get started.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.