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Mortgage Rates Drop, Providing Some Relief for Home Buyers

By: Joe Berner

What Happened to Mortgage Rates This Week:

The Freddie Mac fixed rate for a 30-year mortgage fell for the second week in a row from 5.25% to 5.10%, following Tuesday morning’s sharp dip in the 10-year Treasury. Yields quickly fell 14 basis points from the day’s open, and have hovered around 2.75% since. Investors taking part in the stock market sell-off of the past 5 weeks have shifted their attention to the debt market, driving up prices on T-bills and mortgage-backed securities. This allowed mortgage rates to fall, even amid inflation-cooling policies initiated by the Federal Reserve. Despite the retreat of the last two weeks, the 30-year fixed rate is still 215 basis points higher than it was this week last year: 2.95%. In practical terms, a monthly payment on the same $300,000 30-year fixed rate mortgage is $372 more than it would have been at last year’s rate, but anyone shopping in today’s market will note that $300,000 today doesn’t buy what it used to. The cost of financing a home purchased at the median listing price and current mortgage rate today compared to one year ago is $751 higher, a jump of 48% stemming from the combined impact of higher rates and home prices.

What it Means:

Mortgage rates leveling off is a lifeline for prospective homebuyers already dealing with inflation and record-high listing prices, and welcome news for the housing market at large. The spike in the cost of home financing over the last 4 months has led to a 4-month slide in new home sales and a 3-month slide in existing home sales. The current slowdown in the market, while increasing the number of homes for sale, may actually exacerbate the existing overall housing shortage in the long term, if the news causes builders to pull back. New construction data shows that completed homes, ready for sale, dropped 5.1% from the prior month, and were 8.6% below April 2021. Homebuilder sentiment, as measured this month by the National Association of Home Builders’ Housing Market Index, is down 10.4% from May of last year and at its lowest level since the early days of the pandemic. Dark and stormy is the current mood, but a period of steadier rates below recent highs will give buyers, sellers, and builders alike the time to adjust to the new financial environment.

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