After five weeks of upward momentum, mortgage rates unexpectedly dropped this week, which could lure potential buyers back into the market.
“The past week has been a whirlwind of economic indicators and unforeseen events that have sent mortgage rates down,” writes Hannah Jones, economic research analyst at Realtor.com.
Although the Fed suggested earlier last week that the federal funds rate could be increased further to ease inflation, the recent crises in the banking sector have sent investors into a tailspin.
“The bankruptcy and resulting bailout of the Silicon Valley Bank led to heightened investor concern about additional bank closures, which pushed activity into Treasuries, resulting in a drop in 10-year Treasury yields and a decrease in in mortgage rates,” says Jones.
30 year fixed rate mortgages
The 30-year average fixed rate dropped to 6.60% this week, compared with last week’s average of 6.73%. A year ago at this time, America’s most popular home loan averaged 4.16%.
While that drop has made home ownership more affordable for many Americans, Nadia Evangelou, senior economist at the National Association of Realtors (NAR), believes rates could drop further depending on the financial market and the Fed’s meeting in next week.
“At today’s rate, many can afford a mid-priced home as they have to spend less than 25% of their gross income for the monthly mortgage payment,” she says.
“If rates drop further to 6%, buyers will be able to buy the mid-priced home by paying 14%, which was the average home down payment for buyers in 2022.”
15 year fixed rate mortgage rate trend
The 15-year average fixed rate also dropped slightly from 5.95% to 5.90% this week. This time, a year ago, the 15-year fixed rate averaged just 3.39%.
“The turmoil in financial markets is putting significant downward pressure on rates, which should benefit borrowers in the near term,” says Sam Khater, chief economist at real estate giant Freddie Mac.
He encourages buyers to take advantage of volatility and research additional rate quotes before settling on a home loan.
“Our research concludes that homebuyers can save $600 to $1,200 annually by taking the time to shop between multiple lenders.”
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Luxury home purchases break record
Wealthy homebuyers are also experiencing a sticker shock in the market. US luxury home sales fell 44.6% year-on-year to the second-lowest level on record during the three months ended Jan. 31, reports real estate brokerage Redfin.
The average selling price also jumped 9% from the same period last year to $1.09 million, close to the all-time high of $1.1 million reached in spring 2022. However, there could still be an “upside front” for potential buyers, according to Redfin head of economics research Chen Zhao.
Zhao points out that competition is limited, and jumbo loans generally have lower mortgage rates compared to other types of loans, since there is less risk that high-end buyers will default on their mortgages.
“Rich house hunters also receive additional fee rebates from their banks as an advantage for storing substantial funds there.”
Zhao recommends that buyers shop around for the best mortgage rate possible and ask their favorite lender to match the lowest quote.
Mortgage demand continues to grow
Thanks to lower rates, demand for mortgages is up 6.5% from last week, according to the Mortgage Bankers Association (MBA).
“Property purchase orders increased for the second consecutive week, but remained nearly 40% below last year’s pace,” says Joel Kan, MBA vice president and chief economist.
“While lower rates should boost demand for real estate, financial market volatility could deter homebuyers from making their decisions.”
The drop in rates also encouraged some borrowers to refinance their home loans, as refinancing activity increased by 5% – although it remains 74% lower than the same week a year ago.
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