Average 30-year mortgage at 4.99% flat rate In the week ending August 4, it was down 5.3% in the previous week, according to Freddie Mac. But that’s still much higher than this time last year when it was 2.77%.
Prices rose sharply at the start of the year, reaching 5.81% in mid-June. But since then, economic concerns have made it more volatile.
“Mortgage rates have remained volatile due to the tug of war between inflationary pressures and the apparent slowdown in economic growth,” said Sam Khater, chief economist at Freddie Mac.
He said that the ups and downs are expected to continue.
“The high uncertainty surrounding inflation and other factors is likely to keep rates floating, especially as the Federal Reserve attempts to navigate the current economic environment.”
“Without a clear direction, markets are locking mortgage rates to move within a narrower range, as the sharp upside has abated,” he said.
In response to high inflation, the Federal Reserve raised its benchmark interest rate by 75 basis points last week, the second increase of that size in several months.
The Federal Reserve does not directly determine the interest rates that borrowers pay on mortgages. Instead, mortgage rates tend to track 10-year US Treasuries. But they are indirectly affected by the Fed’s efforts to tame inflation.
As for consumers, he said, they continue to spend, accumulating a record $16.2 trillion in household debt according to data released by the Federal Reserve this week.
“The big question for consumers is whether companies will overreact to recession fears and start shrinking payrolls,” Ratio said. “A sharp decline in employment could have a direct impact on people’s ability to keep spending, especially with high inflation today.”
Affordability is still the biggest challenge
Buyers find homes less expensive because inflation takes a greater part of their income and the increasing cost of borrowing has reduced their purchasing power.
A year ago, a buyer who paid 20% on a $390,000 home and financed the rest with a 30-year fixed mortgage at an average interest rate of 2.77% received a monthly mortgage payment of $1,277, according to numbers from Freddie. Mac.
Today, a homeowner who buys a home at the same price at an average rate of 4.99% will pay $1,673 per month in principal and interest. That’s roughly an extra $400 each month.
With increased borrowing costs capping the affordability of many buyers, home sales are declining, Ratio said. At the same time, the stock is improving.
“This brought a welcome signal in the property markets for this year – price cuts,” Ratio said.
However, with buyers withdrawing, some sellers are also retreating, feeling they have lost the peak of the market, according to Realtor.com. Equity homeowners may not have to sell in this slower market with higher financing costs.
“With the number of new listings declining, it raises concerns that the emerging improvement in inventory may be out of reach as we approach the final stages of the summer,” Ratio said.
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