The average 30-year fixed mortgage rates with conforming loan balances ($647,200 or less) in the US fell by 8bps to 6.41% in the week ended December 2nd. With yields falling in the treasury market, it follows an 18bps drop in the previous week, data from the Mortgage Bankers Association (MBA) showed. It is the fourth consecutive week that borrowing costs have fallen and now stand at their lowest level in since mid-September. A year ago, rates were 3.01%. Mortgage applications fell 2% compared to the Thanksgiving holiday-adjusted results from the previous week, even as mortgage rates continued to trend lower.
Mortage rates have pulled back from highs over 7.16%, the first-time rates were that high since April 2002, according to a survey of lenders released by Freddie Mac. The surge in mortgage rates follows the Federal Reserve aggressively raising rates five times this year. Fed officials have indicated more increases are likely in the months ahead.
- The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) decreased to 6.08 percent from 6.35 percent, with points decreasing to 0.5 from 0.61 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
- The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.39 percent from 6.57 percent, with points decreasing to 0.93 from 1.14 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
- The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.84 percent from 6.02 percent, with points decreasing to 0.55 from 0.69 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.
- The average contract interest rate for 5/1 ARMs increased to 5.59 percent from 5.48 percent, with points increasing to 0.91 from 0.89 (including the origination fee) for 80 percent LTV loans. The effective rate increased from last week.
Higher mortgage rates make homes less affordable
Interest rates have a major influence on housing because they significantly affect a buyer’s monthly payment. Cost of borrowing to buy a house in an already been a pricey housing market. Before the Fed’s hikes the average fixed rate on a 30-year mortgage recently rose to 6.70%, from 4.16% the week of March 17, and additional rate increases would likely push mortgage rates even higher.
Rising rates translate to hundreds of dollars more in a monthly mortgage payment. The median home price reached $403,800 in July, according to data from the National Association of Realtors. Putting a 20% down payment on such a home and taking out a 30-year mortgage with a 6% rate will now pay around $2,400 a month. The same purchase six months ago, would mean monthly payments nearly $250 less.
The uncertainty in the economy and interest rates has widened the gap between what various lenders are offering, Freddie Mac chief economist Sam Khater said in a statement last month. “The large dispersion in rates means it has become even more important for homebuyers to shop around with different lenders.”
“If you look at the big picture of where we stand today versus where we were entering this year, we’re in a vastly different affordability environment,” said Andy Walden, vice president of enterprise research at mortgage-data firm Black Knight.
The higher rates have also made refinancings an unattractive proposition. Applications to refinance are down nearly 85% from a year ago, according to data released by the Mortgage Bankers Association. The drop-off is forcing some mortgage lenders to cut jobs or even close shop, since refinancings made up the bulk of originations during the pandemic.
The MBA expects mortgage originations to drop 48% to $2.3 trillion this year, dragged down by a 73% decline in refinancings.
Source: MBA, Freddie Mac
From The TradersCommunity News Desk