After five weeks of rising, mortgage rates unexpectedly fell this week, which could bring potential buyers back into the market.
“The past week has been a whirlwind of economic indicators and unforeseen events that have sent mortgage rates plummeting,” writes Hannah Jones, economic research analyst at Realtor.com.
Although the Fed suggested earlier last week that the fed funds rate could see bigger hikes to calm inflation, the recent crises in the banking sector have sent investors soaring.
“The failure and resulting bailout of Silicon Valley Bank led to heightened investor concern over further bank closures, which pushed activity toward Treasuries, driving yields lower on 10-year Treasuries and lower mortgage rates,” Jones said.
30 Year Fixed Rate Mortgages
The average 30-year fixed rate fell to 6.60% this week from an average of 6.73% last week. A year ago at this time, the most popular home loan in the United States averaged 4.16%.
While the drop has made buying a home more affordable for many Americans, Nadia Evangelou, senior economist for the National Association of Realtors (NAR), believes rates could come down further, depending on the financial market and the Fed meeting next week.
“At the current rate, many can afford to buy a home at the median price since they have to spend less than 25% of their gross income on a monthly mortgage payment,” she says.
“If rates fall further to 6%, buyers will be able to purchase the home at the median price by putting down 14%, which was the median down payment for buyers in 2022.”
Evolution of 15-year fixed-rate mortgage rates
The average 15-year fixed rate also fell slightly from 5.95% to 5.90% this week. A year ago, at this time, the 15-year fixed rate averaged just 3.39%.
“The financial market turmoil is putting significant downward pressure on rates, which should benefit short-term borrowers,” said Sam Khater, chief economist at housing giant Freddie Mac.
He encourages buyers to take advantage of volatility and seek additional quotes before settling on a home loan.
“Our research concludes that homebuyers can potentially save $600 to $1,200 per year by taking the time to shop around with multiple lenders.”
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Luxury home purchases plunge unprecedentedly
Affluent homebuyers have also suffered a shock from the stickers in the market. U.S. luxury home sales fell 44.6% year-on-year to the second-lowest level on record in the three months ending Jan. 31, the company reports. Redfin real estate brokerage.
The median selling price also jumped 9% from the same time last year to $1.09 million, near the all-time high of $1.1 million reached in the spring of 2022. However, there may still be have a “silver lining” for potential buyers, according to Redfin Chen Zhao, head of economics research.
Zhao points out that competition is limited and that jumbo loans often have lower mortgage rates than other types of loans because there’s less chance of high-end buyers defaulting on their mortgages.
“Wealthy house hunters are also frequently offered additional rate reductions by their banks as an advantage for storing substantial funds there.”
Zhao recommends buyers research the best possible mortgage rate and ask their preferred 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).
“Home purchase inquiries increased for the second week in a row, but remained nearly 40% below last year’s pace,” said Joel Kan, vice president and deputy chief economist at the MBA.
“While lower rates are expected to boost housing demand, volatility in financial markets could cause buyers to put decisions on hold.”
Lower rates have also encouraged some borrowers to refinance their home loans, with refinancing activity picking up 5% – although it remains 74% lower than the same week a year ago.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.