Record-high home prices and rising interest rates have made it challenging for many would-be home buyers to make a purchase. However, there is some relief on the horizon as the average rate on new 30-year fixed-rate mortgage loans dropped slightly for the week ending July 11. According to mortgage buyer Freddie Mac, the interest rate fell to 6.89 percent, down from 6.95 percent the previous week.
While this may seem like a small decrease, it can make a significant difference for buyers facing high home prices. In fact, higher rates can add hundreds of dollars to a borrower’s monthly mortgage payments, prompting many shoppers to delay purchasing a home due to the added expense. This has contributed to the ongoing housing slump in the nation.
The 15-year fixed-rate mortgage also saw a decline this week, with the average rate falling to 6.17 percent from 6.25 percent the previous week. This type of mortgage is particularly popular with homeowners who want to refinance their loans.
The movement of fixed-rate mortgage rates is influenced by several factors, including the 10-year Treasury yield and the Federal Reserve’s interest rate policy. In late April, the Treasury yield reached over 4.7 percent but has since declined, largely due to hopes that inflation was slowing enough for the Fed to lower its main interest rate from its 20-year high.
Sam Khater, chief economist at Freddie Mac, believes that the recent decrease in mortgage rates is tied to the cooling labor market and the increase in inventory on the market. He states, “Following June’s jobs report, which showed a cooling labor market, the 10-year Treasury yield decreased this week, and mortgage rates followed suit. We’re also seeing more inventory on the market, including a fair number of listings with price cuts, which is an encouraging sign for prospective buyers.”
Indeed, there has been an increase in housing supply in recent months, offering more options for buyers. According to the National Association of Realtors (NAR), the total housing inventory was 1.28 million units at the end of May, representing a 6.7 percent increase from April and an 18.5 percent increase year over year.
NAR Chief Economist Laurence Yun believes that this increase in housing supply will help soften the record-high home prices in the coming months, giving buyers more opportunities to find a suitable property. He states, “Increased housing supply spells good news for consumers who want to see more properties before making purchasing decisions.”
As more existing homes hit the market, the number of days on the market without a contract has also increased. This provides buyers with more opportunities to negotiate and find a home that meets their needs. Daryl Fairweather, Chief Economist at Redfin, suggests that serious buyers should take advantage of the current market conditions. He states, “The combination of declining mortgage rates, rising supply, and a lot of inventory growing stale means buyers have a window where they have more purchasing power than earlier in the year and more homes to choose from.”
However, Fairweather also cautions that it is difficult to predict how long this favorable market will last. Declining rates may bring more homebuyers back to the market, increasing competition and potentially driving home prices even higher. On the other hand, if rates continue to drop further, monthly costs may decline, leading to even more competition and higher home sales.
In conclusion, the recent drop in mortgage rates provides some relief for buyers facing record-high home prices. Increased housing supply and a longer time on the market without a contract give buyers more opportunities to negotiate and find their dream home. However, it remains uncertain how long these favorable conditions will last, making it important for serious buyers to act quickly.
