30-year mortgage rates drop slightly, halting sharp rise

30-year mortgage rates drop slightly, halting sharp rise

After climbing for nearly eight straight weeks, US mortgage rates took a breather this week, according to a widely watched survey.

The most popular mortgage rate in the United States, the 30-year mortgage, remained virtually the same. It generally rises and falls alongside Treasury yields, which fell this week as investors worried about worsening COVID-19 cases and lockdowns in China, says George Ratiu, senior economist at Realtor.com. Such events could further clog supply chains that drive up the cost of household goods.

“Inflation is likely to run at a faster pace for longer than expected, which will keep pressure on medium-term mortgage rates,” Ratiu said.

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30 Year Fixed Rate Mortgages

The average rate for a 30-year fixed-rate mortgage stabilized at 5.10% this week, down from 5.11% a week earlier, Freddie Mac reported Thursday. A year ago at this time, the rate of 30 averaged 2.98%.

Even though mortgage rates are higher than they were last year, historically they’re not as high as they used to be, says Nadia Evangelou, senior economist at the National Association of Realtors.

At the start of 2002, for example, the average 30-year fixed rate loan averaged around 7%.

This week’s rate pause comes just ahead of a crucial two-day Federal Reserve meeting where policymakers are expected to raise the benchmark interest rate for the second time this year amid runaway inflation.

Fed Chairman Jerome Powell told an International Monetary Fund seminar last week that a half-percentage-point hike would be “on the table” at the Fed’s policy meeting in may. In March, the group raised the federal funds rate by a quarter of a percentage point.

“It’s appropriate in my view to go a little faster,” Powell said during the meeting.

The central bank is also poised to start trimming the huge portfolio of US Treasuries and mortgage-backed securities it acquired during the pandemic to keep borrowing costs down and the buzz of the economy humming. ‘economy.

15-year fixed rate mortgages

The 15-year fixed-rate mortgage is now averaging 4.4%, down from 4.38% last week, according to Freddie Mac. Last year at this date, the 15-year rate was 2.31%.

Borrowers with 15-year mortgages generally pay lower overall interest charges and repay their loans faster than homeowners with 30-year mortgages.

But the shorter loan term means borrowers will make higher monthly payments. This can pinch homeowners already facing higher costs for everyday items like food, gas and housing.

“A typical borrower’s principal and interest payment was $387 more than March 2021,” said Edward Seiler, associate vice president of the Mortgage Bankers Association. “Rapid price appreciation, sky-high inflation, low inventories and mortgage rates now two percentage points higher than last year are all headwinds for the housing market in the months ahead, particularly for first-time buyers.

5 Year Adjustable Rate Mortgages

The five-year variable-rate mortgage rate averaged 3.78% this week, down from 3.75% previously. Last year at this time, the 5-year ARM averaged 2.64%.

With a 5/1 ARM, the interest rate is fixed for the first five years, then adjusts annually—sometimes up sharply—for the rest of the time you have the loan.

ARMs, with their lower initial rates than longer loans, are becoming more attractive to borrowers financing near-record amounts as home prices rise. Their share of mortgage applications rose to 9.3% last week, from 3.4% this time last year and the highest since 2019, according to the MBA.

People might decide to refinance after the initial rate cuts end, if mortgage rates go down in the future.

A weaker housing market ahead

Recent rate hikes are clouding the housing market.

Amid higher borrowing costs and burning home prices, some potential buyers are taking pause.

Mortgage applications fell 8.3% last week from the previous week, the lowest level since 2018, the Mortgage Bankers Association reported this week.

“The recent decline in purchase requests is an indication of potential weakness in home sales in the months ahead,” said Joel Kan, associate vice president of economic and industry forecasting at the MBA.

This could be good news for budding buyers who are struggling to find a home in a fiercely competitive environment.

For now, homebuyers are coping with higher costs and lack of supply by switching to variable rate mortgages and staying away from expensive cities in favor of more affordable suburbs, says Sam Khater , chief economist at Freddie Mac.

“We expect lower demand to slow house price growth to a more sustainable pace later this year,” he said.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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