Last week, mortgage rates gradually decreased and retreated back toward the 5% level as a result of economic reports that suggested inflation may have reached its peak.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 5.13% in the week ending August 18, down from 5.22% the week before. Rates are still substantially higher than they were at this time last year, when the 30-year was at 2.86%, notwithstanding the most recent decline.
Mortgage rates spiked throughout the first half of the year from the year’s low of 3.22% to a high of 5.81% in mid-June. However, since that time, they have been more erratic due to worries about the economy and the Federal Reserve’s goal to fight inflation.
Sam Khater, chief economist at Freddie Mac, stated that “inflation appears to be beyond its peak, which has prevented the fast spike in mortgage rates that the housing market was seeing earlier this year.”
This summer’s property market has suffered as a result of higher borrowing rates. Fewer individuals are applying for mortgages, which is in addition to a steep decline in the sales of both new and existing residences.
According to Khater, “the market continues to absorb the cumulative effect of the significant price and rate hikes that resulted in a decline in affordability.” “As a result, during the remainder of the year, buy demand is anticipated to lag, supply is likely to expand somewhat, and home price growth is likely to slow down.”
According to the Mortgage Bankers Association, mortgage application activity decreased last week compared to the week before, and overall applications have dropped to their lowest levels since 2000.
According to Joel Kan, MBA’s associate vice president of economic and industry forecasts, “home purchase applications continued to be held down by fast drying up demand, as high mortgage rates, tough affordability, and a gloomier picture of the economy kept purchasers on the sidelines.”
However, he added, if mortgage rates decline and home price rise slows more noticeably, buy activity may increase later in the year.
Even so, affordability continues to be a problem for many would-be home purchasers, particularly when compared to the price of financing a home just a year ago.
According to calculations from Freddie Mac, a buyer who paid 20% down on a $390,000 house and borrowed the remainder with a 30-year, fixed-rate mortgage at an average interest rate of 2.86% had a monthly mortgage payment of $1,292 a year ago.
At the current average rate of 5.13%, a homeowner purchasing a home at the same amount would pay $1,700 per month in principal and interest. That amounts to around $408 extra every month.
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