Interest rates on 30-year mortgages fell a little this week but are still high and near levels last observed in 2008, based on data from Freddie Mac.
The average rate for fixed mortgages of 30-year stood at 6. 61% for the week ending November the 3rd, down from 6. 66% in the week preceding this one. A year ago at this time, rates were at a low of 3. 09%.
“Mortgage rates continued their journey downwards this week based on rising worry over lack of economic growth,” said Freddie Mac’s Sam Khater, the chief economist. “The latest consumer spending and manufacturing reports revealed that the rates dropped more than estimated in October, and the consumers and business sentiment are also suggesting that the economy is weakening. ”
The decline in rates follows the Federal Reserve’s meeting that was held last week when the central bank hiked the benchmark interest rate by 75 basis points to curb inflation. The Fed has raised the borrowing costs throughout the economy, especially mortgage rates that have more than doubled in the past year.
Nevertheless, they are slightly down this week and still remain much higher than a year ago and thus are continuing to apply pressure on the housing market. This has led to an increase in interest mortgage rates to curb demand for mortgages since buyers can barely afford the house prices and at the same time caused affordability issues to many potential homeowners.
“The ambiguity of what direction the economy will take in the future is the cause for the downward trend in mortgage rates,” Zillow’s vice president of capital markets, Paul Thomas, explained. “It is possible to hope that the actions of the Fed are as intended to curb the economy, but for those interested in buying homes, uncertainty only deepens already high affordability constraints. ”
The average rate on a 5/1 adjustable rate mortgage was also down slightly at 5. 36% compared to 5. 38% last week. The most commonly used refinance rate, the 15-year fixed mortgage, was slightly down at 5. 98% from 6. 02%. A year ago 15-year loans were being offered at an average of only 2. 35 %.
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Mortgage applications fell to their lowest level last week since 1997 as indicated by the Mortgage Bankers Association. Refinance and purchase applications had a significant drop as the mortgage rates continue to rise and the affordability of homes decreases.
The average rate on a 30-year fixed mortgage of $100,000 is now more than double what it was a year ago, hence higher monthly mortgage payments. The weekly rate report by Freddie Mac shows that for a home that costs $500,000 and has borrowed money with a 30-year mortgage, today’s average payments are $400 more than they were this time last year. Overall, that comes to an additional $144,000 in interest paid over the total term of the loan.
Mortgage lenders have also pulled in their belt and have adopted stricter lending criteria this year, with Fannie Mae revealing in October that over 20% of lenders now require FICO scores of 760 and above for best mortgage rates. Banks especially have retreated particularly on government-sponsored FHA loans that are often preferred by first-time homeowners.
Many analysts believe that mortgage rates will remain fluctuating in the following months as the market adjusts to the fresh information on inflation and the state of the economy. However, as the Fed promised more rate hikes in the future, analysts believe that borrowers should brace for mortgage rates to stabilize at levels higher than in the past decade. Which is likely to continue to bear on the housing segment given that new and existing home sales have dipped over the past half a year.
“Mortgage rate volatility, cost and limited availability of land are all barriers impacting home purchase decisions,” NAHB chief economist, Robert Dietz. “Housing starts, sales and affordability conditions are now expected to deteriorate in 2023. ”
But it is first-time buyers attempting to enter the market for the first time, who are being hardest hit by these higher borrowing costs along with record increases in home prices and limited supplies. Inflation continues to be persistently elevated, and the Fed has signaled that controlling it is its main goal, including if the move leads to a recession.
This implies that there is no respite in sight for potential home buyers who are waiting for mortgage rates to return to a more reasonable level in the coming months. Analysts believe that mortgage rates are to hover at around 7% in the first half of the new year and continue to be above year-ago levels for the next several months.
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