Freddie Mac
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Mortgage rates continued their climb past the 7% threshold this week, sidelining price-sensitive buyers in their wake.
The rate on the 30-year fixed rate mortgage rose to 7.17% on Thursday, up from 7.1% the week prior, according to Freddie Mac. Rates surged past 7% last week for the first time this year following a government report showing inflation remained hotter than expected.
A separate measure, which tracks rate changes daily, revealed even bigger swings. The daily rate on the popular 30-year fixed loan was 7.52% on Thursday, the highest reading since November 2023, according to Mortgage News Daily.
The uptick in rates was a sour note for would-be buyers hoping to get into the spring market, forcing some first-time and repeat buyers back on the sidelines.
Any hope of seeing rates stabilize will be contingent on inflation, said Jiayu Xu, an economist at Realtor.com.
“Unfortunately, the rising mortgage rates occurred during what is typically a busy time in the housing market, potentially giving pause to prospective homebuyers as they weigh their purchasing decisions,” Xu said. “Despite the increased mortgage rates leading to higher costs, it could also suggest a less competitive market where opportunities may exist for some homebuyers.”
Read more: Mortgage rates today, April 25: Rates increase for the 4th straight week
Buyers backpedal as rates soar
Demand for mortgages slowed last week as mortgage rates hit their highest levels since late 2023.
The volume of applications to purchase a home fell 1% during the week ending April 19, according to the Mortgage Bankers Association (MBA) weekly survey of applications. Overall, applications were down 15% compared to one year ago.
Those purchasing turned to government-backed loans or adjustable-rate mortgages (ARMs), which offer slightly lower interest rates.
The ARM share of applications increased nearly 8%, the MBA noted, which was consistent with the uptick in rates as buyers searched for any measure of relief. The FHA share of applications also registered a modest uptick, rising roughly 13% for the week ending April 19.
But homebuyers weren’t the only ones halted by the uptick in mortgage rates. Refinance applications fell 6% last week, the MBA found, as homeowners lost hope of snagging a lower rate.
While mortgage rates are partially to blame for the lull in demand, the limited supply of homes on the market is a big factor. There’s still more demand than there is supply, keeping home prices from edging down.
It’s also fed the lock-in effect.
“The jump in mortgage rates has taken the wind out of the sails of the mortgage market,” said Bob Broeksmit, CEO and MBA president. “Along with weaker affordability conditions, the lock-in effect continues to suppress existing inventory levels as many homeowners remain unwilling to sell their home to buy a new one at a higher price and mortgage rate.”
Read more: Mortgage rates top 7% — is this a good time to buy a house?
A silver lining in new construction
While inventory of previously owned homes continues to hover near 30-year lows, sales of newly built homes in March surpassed expectations, seeing the largest increase since December 2022.
Sales of newly built, single-family homes in March rose nearly 9% to 693,000 on a seasonally adjusted annual rate, according to data released this week by the US Census Bureau and US Department of Housing and Urban Development.
The pace of new home sales last month was up just over 8% from a year earlier, though experts predict it may moderate.
Still, new homes represent a cushion for buyers facing low inventory on the existing home side.
New single-family home inventory in March sat at 477,000, up nearly 3% from February. That represents about 8 months of supply at the current building pace. As for existing single-family homes, data from NAR shows there were just over 3 months of supply in March — at least 5 to 6 months represent a balanced market.
Overall, the inventory of newly built homes in March was up just over 10% annually.
According to Sam Khater, Freddie Mac’s chief economist, buyers are coming to terms with higher rates, as evidenced by the recent uptick in sales for new homes.
“Despite rate increases more than half a percent since the first week of the year, purchase demand remains steady,” said Khater. “With rates staying higher for longer, many homebuyers are adjusting.”
Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
Click here for real estate and housing market news, reports, and analysis to inform your investing decisions.his
Source: finance.yahoo.com
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Tony Anderson/GettyImages; Illustration by Hunter Newton/Bankrate
Key takeaways
- HFA loans are mortgages available solely through state housing finance agencies.
- Geared toward first-time and low- to moderate-income homebuyers, HFA loans feature low down payments, competitive interest rates and down payment and closing cost assistance.
- HFA terms and qualifications vary by state, which may impose income and purchase price limits on borrowers.
No, “HFA loan” is not a misidentification of the better-known FHA loan. It’s a wholly different type of mortgage, offered through state housing finance agencies (HFAs) in partnership with major loan providers Fannie Mae and Freddie Mac. HFA loans help make homeownership more affordable for first-time homebuyers and low- to moderate-income borrowers, thanks to their reduced interest rates and closing costs, as well as their down payment assistance options.
What is an HFA loan?
HFA loans are conventional mortgages, issued by private lenders, which must conform to guidelines set by Fannie Mae and Freddie Mac.
HFAs support affordable housing initiatives, including helping homebuyers, homeowners and renters. While their exact function and relationship to their state government varies, HFAs typically act as independent organizations, overseen by a board of directors appointed by the state’s governor. They might be referred to as the state’s housing “authority,” “commission,” “corporation” or “department.”
Fannie Mae and Freddie Mac are two government-sponsored enterprises (GSEs) that back much of the mortgage market in the U.S. They work with state housing authorities (HFAs) nationwide to offer these loans. Fannie and Freddie design the loans and their terms, but neither they nor the state directly funds them or deals directly with applicants. Instead, they work through a selection of approved, private mortgage lenders.
How does an HFA loan work?
HFA loans come with many caveats. You have to meet your state program’s requirements for income and homeownership status (you typically can’t have owned a house within the past three years.) And you’ll probably need to take a homebuyer education course designed to prepare you for the homebuying process.
Once you’re approved, you can often finance the down payment with down payment assistance, which is provided through the HFA. The assistance could be in the shape of a second mortgage (with very generous terms), a forgivable loan (that doesn’t need to be repaid in full or in part if you meet certain conditions), or even an outright grant (like HFA Preferred grants), depending on what that particular state authority offers. Often this assistance is only available if you are financing with an HFA loan.
HFA loan requirements
To qualify for one of these mortgages, you generally must meet a few basic HFA loan requirements:
- Down payment: 3 percent for single-family homes
- Credit score: at least 620
- Debt-to-income ratio: 45 percent
- Occupancy requirement: At least one borrower must use the home as a primary residence
Your local HFA may have extra minimums you must meet. Often, you need to be within certain income and purchase price limits that vary by county/municipality and household size. And of course, you have to be buying the home within the state.
Types of HFA loans
There are two types of HFA loans: Fannie Mae’s (called HFA Preferred) and Freddie Mac’s (known as HFA Advantage). Some states offer both HFA Preferred and HFA Advantage loans; some opt to go with one type exclusively. Here’s how the two types compare.
Fannie Mae’s HFA Preferred |
Freddie Mac’s HFA Advantage |
|
---|---|---|
Loan type | Conventional | Conventional |
Rate type | Fixed rate | Fixed rate |
Minimum down payment | 3 percent | 3 percent |
Distinct features | These loans also allow for limited cash-out refinancing | People who do not plan to live in the home can serve as co-borrowers |
HFA vs. FHA mortgage loans
An HFA loan and FHA loan might sound the same — and have similar characteristics, like a low down payment — but they are two separate types of mortgages. Let’s dive into some of the similarities and differences.
HFA loans |
FHA loans |
|
---|---|---|
Sponsoring entity | State housing finance agencies (HFAs) | Federal Housing Administration (FHA) |
Available from | State-approved lenders | Banks, credit unions, mortgage companies and other businesses that offer mortgages |
Minimum down payment | 3 percent | 3.5 percent |
Minimum credit score | 620 | 580 |
Income and purchase price limits | Often imposed | Not often imposed |
Mortgage insurance | Yes, but like with other conventional loans, private mortgage insurance (PMI) is cancellable once you have built up 20 percent equity in your home | Mortgage insurance premiums (MIP) required; may be permanent or cancellable, depending on the down payment size |
HFA loan pros and cons
An HFA mortgage has its pros and cons to consider before deciding if it’s the best choice for you:
Pros of HFA loans
- Low down payment requirement and closing costs: With an HFA loan, you can put down as little as 3 percent. Closing and upfront fees tend to be low.
- Financial assistance: Many HFAs offer assistance with closing costs or down payments.
- Lower mortgage insurance costs/easier insurance elimination: HFA loans charge less for mortgage insurance and eliminate insurance payments automatically upon reaching 80 percent loan-to-value (LTV) ratio. Other programs, like FHA loans, make it harder — if not impossible — to get out of mortgage insurance, as long as the loan is active.
Cons of HFA loans
- Not widely available: You can only get an HFA loan from your local state agency. Other types of loans are more widely available.
- Income limits: HFA loans are for people with incomes lower than the median of their geographic area.
- Inconsistent rules: Each HFA can set different rules and requirements, so you need to check with your specific HFA to learn if you’re eligible.
- Higher credit score requirements: Though low, HFA loans have higher credit score minimums than some alternatives like FHA loans.
Who is an HFA loan best for?
Getting an HFA loan might be a better idea for certain people. Consider an HFA loan if you fall into at least one of these categories:
- First-time buyers. The definition is broad enough to include first-time homeowners and buyers who haven’t owned a home in the past three years.
- Those with moderate incomes. To qualify, your income must fall within the HFA’s income limits, which are typically set yearly and vary from state to state — and even counties within the state. Those with high incomes should look elsewhere.
- Owner-occupants. HFAs aren’t available for investment properties or vacation homes. Rather, they’re for principal residences.
- House hackers. HFA loans do allow purchases of two- to four-unit residences, meaning you could finance a duplex, divided townhouse or small apartment building. You’d just need to occupy one unit and rent out the rest, a strategy sometimes known as “house hacking.”
How to apply for an HFA loan
- Explore your HFA’s options. Each HFA has its own requirements for HFA loans, and could also offer alternative programs and assistance. You can find your HFA’s website through our guide to first-time homebuyer programs by state.
- Contact the state housing authority. Depending on the HFA, you can either fill out a form online to get in touch for more information, or call the agency directly.
- Find an approved mortgage lender. HFA loans are only offered through lending partners approved by your HFA. You can find a list of these lenders on your HFA’s website.
- Compare lender reviews and testimonials to help narrow your options. From there, you can move forward with a preapproval and application, and a homebuyer course, if needed. When you apply for an HFA loan, be prepared to provide all of your financial information, including paystubs and tax returns.
Other low-down payment mortgages
Whether you’re a first-time or repeat homebuyer, there are several other low down payment mortgage options. Some of the most popular include:
- FHA loans: More widely available than HFA loans. Lower credit score requirements. 3.5 percent down payment requirement.
- VA loans: Only available to veterans and service members. No down payment requirement.
- USDA loans: Only available in specific areas. No down payment requirement.
- HomeReady/Home Possible loans: 3-5 percent down payment required. Lower mortgage insurance costs. Income limit of 80 percent of the local area median income.
- Conventional 97 loan: Conventional mortgage with 3 percent down payment requirement.
HFA loan FAQ
-
HFA mortgage rates can vary with market rates and the HFA you work with. They tend to be quite competitive with national average rates. To find up-to-date rates, contact your state’s HFA.
-
Yes, you can use down payment assistance when applying for an HFA mortgage. Your HFA may be able to help you find assistance.
-
Yes, HFA mortgages require mortgage insurance payments. You can get out of these payments once you reach an 80 percent LTV ratio or 20 percent home equity.
-
Yes, it is possible to refinance to an HFA loan. Depending on the type of HFA loan you have, you may or may not be able to take cash out during closing.
Source: bankrate.com
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Key takeaways
- You can get a mortgage with a credit score as low as 620, 580 or even 500, depending on the type of loan.
- Some mortgage lenders offer bad credit loans with more flexible qualifying requirements but higher costs. Others offer free credit counseling to help you improve your score before applying for a loan.
- While you might be eligible for a mortgage with a low credit score, you’ll pay a higher interest rate for the loan. That’s why it’s best to work on your credit prior to getting a mortgage.
Your credit score is the first factor mortgage lenders consider when determining whether you’re eligible for a loan. In general, a good to excellent credit score translates to more loan options and a better mortgage interest rate. However, you might still be able to buy a house with a lower credit score. Here’s how.
Can you buy a house with bad credit?
Yes, you could buy a house with bad credit. There are several mortgage programs that allow for lower credit scores, including conventional (the most popular loan type) and FHA loans.
The typical mortgage borrower, though, has very good credit. As of the fourth quarter of 2023, the median credit score for a mortgage borrower was 770, according to the Federal Reserve Bank of New York. Just 4 percent of mortgages went to borrowers with credit scores below 620.
Money tip: Mortgage lenders reserve their best rates for borrowers with credit scores at 740 or higher — considered “very good” by FICO scoring standards.
What do mortgage lenders consider a low credit score?
Your credit score isn’t the only factor in your mortgage approval odds, but it’s a key indicator of your risk as a borrower. Mortgage lenders most often use the FICO credit scoring model to assess creditworthiness. Here’s how those ratings work:
Credit score range | Rating |
---|---|
Source: FICO | |
Below 580 | Poor |
580-669 | Fair |
670-739 | Good |
740-799 | Very good |
800 or above | Excellent |
How do lenders evaluate your credit?
Lenders rely on data from the three main credit reporting bureaus, Equifax, Experian and TransUnion. Your lender will look at the middle credit score of the three when considering you for a mortgage. In addition to your scores, your lender will look at your credit report, including total debt and any issues like defaults or late payments.
How much will a low credit score cost you?
A poor credit score will primarily cost you in the way of a higher interest rate. Here’s an example assuming a 3 percent down payment on a 30-year conventional loan for $368,000:
FICO score | APR* | Monthly payment | Total interest paid |
---|---|---|---|
*As of March 2024
Source: myFICO loan savings calculator |
|||
760-850 | 6.636% | $2,359 | $481,248 |
700-759 | 6.858% | $2,413 | $500,795 |
680-699 | 7.035% | $2,457 | $516,609 |
660-679 | 7.249% | $2,510 | $535,657 |
640-659 | 7.679% | $2,618 | $574,611 |
620-639 | 8.225% | $2,758 | $624,951 |
Bad credit home loans
Loan type | Credit score minimum |
---|---|
Conventional loan | 620 or 660 depending on program |
FHA loan | 580 (or 500 with a minimum 10 percent down payment) |
VA loan | No official requirement, but typically 620 |
USDA loan | No official requirement, but typically 640 |
Conventional loans
Fannie Mae and Freddie Mac each back conventional loans with a lower minimum credit score: 620 and 660, respectively. Both of these loans require just 3 percent down.
FHA loans
The Federal Housing Administration (FHA) insures FHA loans, which allows mortgage lenders to accept a credit score as low as 580 with a 3.5 percent down payment, or 500 with a 10 percent down payment.
VA loans
If you’re a military member, a veteran or married to someone who has served in the armed forces, you could benefit from a VA loan backed by the U.S. Department of Veterans Affairs. You don’t have to meet a specific credit score minimum to qualify, although many lenders do require at least 620.
USDA loans
If you have a lower income and want to buy a home in a particular rural area, look into a USDA loan. While not a hard-and-fast rule, most USDA-approved lenders require a minimum credit score of just 640.
Tips to get a mortgage with a low credit score
You can get a mortgage with a lower or bad credit score, but you’ll still need to financially prepare to make sure you get the best possible loan terms. Here are some steps to take:
1. Check your credit report for errors
If you’re wondering whether you can buy a house with bad credit, check your reports first. If you see a mistake or outdated item — generally seven years old, but sometimes longer for bankruptcies, liens and judgments — contact Equifax, Experian or TransUnion. Each credit bureau has a process for correcting errors and out-of-date information.
2. Pay down or pay off debt
When working toward buying a home with bad credit, try to pay down what you already owe. Lowering your debt load might not only boost your credit score, but also make you eligible for a bigger mortgage, thanks to a better debt-to-income (DTI) ratio.
3. Shop around
Every mortgage lender is different, and some offer lower rates and fees than others. If nothing else, research shows that getting multiple rate quotes can save you thousands over a 30-year mortgage. Banks aren’t the only spot to get a mortgage, either. There are also non-bank and online-only lenders, credit unions and other types of mortgage companies. Check out these different types of lenders to see where you get the best offer.
4. Find a co-signer
If you have bad credit, consider asking a family member or friend with better credit to co-sign your mortgage. This can help give your application a boost — but only if the co-signer is able and willing to take on the debt. (Note that co-signing is different from co-borrowing.)
5. Avoid too-good-to-be-true loans
If you see ads promising “guaranteed” approval for a mortgage regardless of credit, it’s a red flag. Under federal rules, a lender must verify the ability of a borrower to repay a mortgage, so there can’t be a “guarantee” unless that happens. Even if you get that guaranteed approval, it usually comes with excessive or inflated costs.
6. Consider a rapid rescore
Credit report changes can take time to go through the system, so improved scores might not show up in time for a mortgage application. In this case, you can try getting a rapid rescore through your lender. In this process, your lender submits proof to a credit agency that an applicant has made recent changes or updates to their account that are not yet reflected on their credit report. You’ll need to pay for this service, but the expense might be a worthwhile tradeoff to get a better interest rate.
Bottom line
It is possible to buy a house with bad credit, but you should take steps to improve your score, if possible, before applying for a mortgage.
Source: bankrate.com
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“Higher interest rates, uncertainty about property values, and questions about some properties’ fundamentals led to a steep fall-off in borrowing and lending backed by commercial real estate last year,” said Jamie Woodwell, head of commercial real estate research at MBA. “The declines were broad-based, covering every major property type and capital source.” Despite these challenges, … [Read more…]
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National mortgage rates edged higher for all types of loans compared to a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans jumped.
Some forecasters are backing off from the earlier expectation of lower mortgage rates this year. Fixed mortgage rates follow the 10-year Treasury yield, which moves as investor appetite fluctuates with the state of the economy, inflation and Federal Reserve decisions.
“The issue of inflation remains unsettled,” says Ken Johnson of Florida State University. “This is putting upward pressure on mortgage rates through the yield on 10-year Treasurys.”
The Fed indicated it’d cut rates in 2024, but policymakers held off at its latest meeting, citing the need for more promising economic data. The Fed has been working to bring inflation back to its 2 percent target since 2022.
The Fed meets next on May 1 — at the start of the homebuying busy season.
Whether mortgage rates move up or down, though, it’s difficult to time the market. Often, the decision to buy a home comes down to what you need. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than waiting for a time when rates and prices are more favorable.
Rates accurate as of April 22, 2024.
The rates listed here are averages based on the assumptions shown here. Actual rates available across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Monday, April 22nd, 2024 at 7:30 a.m. ET.
30-year mortgage rate increases, +0.24%
The average rate you’ll pay for a 30-year fixed mortgage today is 7.29 percent, up 24 basis points over the last seven days. Last month on the 22nd, the average rate on a 30-year fixed mortgage was lower, at 6.97 percent.
At the current average rate, you’ll pay a combined $684.89 per month in principal and interest for every $100,000 you borrow. That’s up $16.23 from what it would have been last week.
Learn more about 30-year fixed mortgage rates, and compare to a variety of other loan types.
15-year mortgage rate advances, +0.20%
The average 15-year fixed-mortgage rate is 6.74 percent, up 20 basis points over the last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $884 per $100,000 borrowed. The bigger payment may be a little harder to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much faster.
5/1 ARM rate trends higher, +0.10%
The average rate on a 5/1 adjustable rate mortgage is 6.68 percent, rising 10 basis points since the same time last week.
Adjustable-rate mortgages, or ARMs, are mortgage loans that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for people who expect to refinance or sell before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.68 percent would cost about $644 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.
Jumbo mortgage interest rate moves up, +0.17%
The average rate for a 30-year jumbo mortgage is 7.38 percent, up 17 basis points since the same time last week. This time a month ago, jumbo mortgages’ average rate was below that at 7.12 percent.
At today’s average rate, you’ll pay $691.02 per month in principal and interest for every $100,000 you borrow. That’s an increase of $11.55 over what you would have paid last week.
Refinance rates
30-year fixed-rate refinance goes up, +0.23%
The average 30-year fixed-refinance rate is 7.30 percent, up 23 basis points over the last seven days. A month ago, the average rate on a 30-year fixed refinance was lower at 6.91 percent.
At the current average rate, you’ll pay $685.57 per month in principal and interest for every $100,000 you borrow. Compared with last week, that’s $15.56 higher.
Where are mortgage rates heading?
If and when the Fed cuts interest rates depends on incoming economic data, such as the rate of inflation and the jobs market.
“While the majority of Fed members still expect three rate cuts this year, Atlanta Fed President Bostic is now predicting just one rate cut in the fourth quarter,” says Melissa Cohn of William Raveis Mortgage. “Not the news we want for the spring market.”
Keep in mind: The rates on 30-year mortgages mostly follow the 10-year Treasury, which shifts continuously as economic conditions dictate, while the cost of variable-rate home loans mirror the Fed’s moves.
These broader factors influence overall rate movement. As a borrower, you could be quoted a higher or lower rate than the trend based on your own financial profile.
What current rates mean for you and your mortgage
While mortgage rates change daily, it’s unlikely we’ll see rates back at 3 percent anytime soon. If you’re shopping for a mortgage now, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Source: bankrate.com
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“Meaningful gains will only occur with declining mortgage rates and rising inventory,” he said in comments accompanying NAR’s release. Pending home sales climbed 3.4% in March. The Northeast, South and West posted monthly gains in transactions while the Midwest recorded a loss. https://t.co/ly7bgfU16U — National Association of REALTORS® (@nardotrealtor) April 25, 2024 The uptick arrived … [Read more…]
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LOS ANGELES (AP) — Prospective homebuyers are facing higher costs to finance a home with the average long-term U.S. mortgage rate moving above 7% this week to its highest level in nearly five months.
The average rate on a 30-year mortgage rose to 7.1% from 6.88% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.39%.
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford at a time when the U.S. housing market remains constrained by relatively few homes for sale and rising home prices.
“As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year,” said Sam Khater, Freddie Mac’s chief economist. “Last week, purchase applications rose modestly, but it remains unclear how many homebuyers can withstand increasing rates in the future.”
AP business correspondent Alex Veiga reports mortgage rates reaching their highest level in months.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage had remained below 7% since early December amid expectations that inflation would ease enough this year for the Federal Reserve to begin cutting its short-term interest rate.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
But home loan rates have been mostly drifting higher in recent weeks as stronger-than-expected reports on employment and inflation have stoked doubts over how soon the Fed might decide to start lowering its benchmark interest rate. The uncertainty has pushed up bond yields.
The yield on the 10-year Treasury jumped to around 4.66% on Tuesday — its highest level since early November — after top officials at the Federal Reserve suggested the central bank may hold its main interest steady for a while. The Fed wants to get more confidence that inflation is sustainably heading toward its target of 2%.
The yield was at 4.64% at midday Thursday after new data on applications for unemployment benefits and a report showing manufacturing growth in the mid-Atlantic region pointed to a stronger-than-expected U.S. economy.
“With no cuts to the federal funds rate imminent and with the economy still strong, there is no reason to see downward pressure on mortgage rates right now,” said Lisa Sturtevant, chief economist at Bright MLS. “It seems increasingly likely that mortgage rates are not going to come down any time soon.”
Sturtevant said it’s likely the average rate on a 30-year mortgage will hold close to 7% throughout the spring before easing to the mid-to-high 6% range into the summer.
Other economists also expect that mortgage rates will ease moderately later this year, with forecasts generally calling for the average rate to remain above 6%.
Mortgage rates have now risen three weeks in a row, a setback for home shoppers this spring homebuying season, traditionally the housing market’s busiest time of the year.
Sales of previously occupied U.S. homes fell last month as home shoppers contended with elevated mortgage rates and rising prices.
While easing mortgage rates helped push home sales higher in January and February, the average rate on a 30-year mortgage remains well above 5.1%, where was just two years ago.
That large gap between rates now and then has helped limit the number of previously occupied homes on the market because many homeowners who bought or refinanced more than two years ago are reluctant to sell and give up their fixed-rate mortgages below 3% or 4%.
Meanwhile, the cost of refinancing a home loan also got pricier this week. Borrowing costs on 15-year fixed-rate mortgages, often used to refinance longer-term mortgages, rose this week, pushing the average rate to 6.39% from 6.16% last week. A year ago it averaged 5.76%, Freddie Mac said.
Source: apnews.com
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Were the good old days really all that good? Sure, when mortgage rates were below 3%, it was a lot cheaper to purchase a house, but we were also in the middle of a global pandemic.
At the start of 2021, the average rate for a 30-year fixed mortgage was 2.65%, according to data from Freddie Mac. During the homebuying boom of 2020 and 2021, the number of borrowers taking out new mortgages reached a more than two-decade high.
Over the past two years, a combination of high mortgage rates, low housing inventory and sluggish wage growth has crippled affordability for homebuyers.
While many are holding out for mortgage rates to fall, it’s unlikely we’ll see 2% mortgage rates any time soon. In fact, experts hope we don’t.
A return to that kind of low-rate environment would indicate major problems in the economy, said Alex Thomas, senior research analyst at John Burns Research and Consulting.
Mortgage rates typically fall during a recession. But a recession also comes with widespread unemployment, increased debt, investment losses and overall financial instability.
In today’s housing market, homebuyers should have realistic expectations. Experts predict mortgage rates to inch closer to 6% by the end of the year as inflation cools and the Federal Reserve starts to cut interest rates. Record-low mortgage rates aren’t in the cards again, and that’s likely for the best.
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
How did mortgage rates drop below 3% in the first place?
Economic uncertainty and market volatility — whether during an election cycle or a pandemic — impact the direction of mortgage rates. It’s often said that bad news for the economy is good news for mortgage rates, and vice versa.
A significant lever for mortgage rates is the federal funds rate, which the Fed keeps low when it needs to stimulate economic growth. For example, during the 2008 financial crisis, the Fed slashed that benchmark rate to zero to bolster the economy. When there were signs of recovery in 2015, the central bank started raising interest rates again, sending mortgage rates into the 4% to 5% range until 2020.
The COVID-19 pandemic sparked another economic crisis. To incentivize people to borrow and spend money — and avoid a prolonged recession — the Fed once again cut the federal funds rate to near zero and pumped money into the economy by purchasing government bonds and mortgage-backed securities. Mortgage interest rates fell quickly, bottoming out in the mid-2% range in 2021.
But the combination of supply shocks, record-low rates and an extreme increase in money supply from government stimulus helped send prices way up, according to Erin Sykes, chief economist at NestSeekers International.
In early 2022, the Fed had a new problem on its hands: inflation.
💰 Federal Reserve monetary policy
In a recession, the Federal Reserve tries to spur economic growth through quantitative easing, a monetary policy that consists of cutting the federal funds rate to encourage lending and borrowing to consumers, and increasing its purchase of government-backed bonds and mortgage-backed securities.
If the Fed needs to slow the economy down and reduce the money supply in financial markets, it does opposite: quantitative tightening. By increasing the federal funds rate and tapering its bond-buying programs, the central bank raises the cost of borrowing money, which puts upward pressure on longer-term interest rates, like 30-year fixed mortgage rates.
What caused mortgage rates to surge again?
With prices surging in 2022, the Fed’s main tool was to adjust interest rates, making credit more expensive and disincentivizing borrowing. As a result of a string of aggressive rate hikes, the federal funds rate went from near zero to a range of 5.25% to 5.5%, where it’s remained since last summer. Average mortgage rates skyrocketed, peaking past 8% last October.
Although inflation has gone down, the Fed isn’t ready to start lowering rates just yet. The central bank would like to see evidence of a weaker economy (including consistently lower inflation and higher unemployment) before making any adjustments to its monetary policy.
📈 How the Fed impacts mortgage rates
Though the Federal Reserve doesn’t directly set mortgage rates, it controls the federal funds rate, a short-term interest rate that determines what banks charge each other to borrow money. When the federal funds rate moves up, it impacts longer-term interest rates, like 30-year fixed mortgage rates, as banks raise interest rates on home loans to keep their profit margins intact.
Why won’t mortgage rates move toward 2% again?
Economists and housing market experts agree that mortgage rates will fall over the next several years, but not below 3%.
When mortgage rates hit their record lows just a few years ago, the federal funds rate was near zero. As the Fed starts cutting rates later this year, the plan is to do so slowly and incrementally. Barring another major economic shock, the Fed projects the federal funds rate will take only modest adjustments down.
In the most recent policy meeting, Fed Chair Jerome Powell remarked that the federal funds rate “will not go back down to the very low levels that we saw” during the financial crisis, suggesting that the economy can adapt to a more “neutral” benchmark rate range of between 2.4% to 3.8% in the long run, i.e., less tightening, but not too much easing from the current range of 5.25% to 5.5%.
The Fed would be forced to lower rates close to zero only if there were a dramatic economic shock, such as a pandemic or recession, said Selma Hepp, chief economist at CoreLogic. In that case, if the central bank started purchasing government bonds and mortgage-backed securities again, there’s a possibility mortgage rates could return to those record lows.
However, without such an upheaval, there’s a floor under how low mortgage rates will go, and it’s highly unlikely they’ll ever drop to their 2020-2021 levels.
“With the Federal Reserve ending quantitative easing and stepping out of the market for mortgage-backed securities, rates will settle at a much higher level,” said Matthew Walsh, housing economist at Moody’s Analytics.
Moody’s Analytics predicts mortgage rates will stabilize between 6% and 6.5% over the next few years. That’s high compared with the recent past, yet it’s a historically normal range for mortgage rates.
How can homebuyers adapt to higher mortgage rates?
The housing market is frustrating, but prospective homebuyers are starting to come to terms with this new reality. Following the pandemic, people are moving on with their lives, whether that’s building a family, relocating, downsizing or upgrading.
For some households, that means making room in their budget for a monthly mortgage payment at a 6% or 7% rate.
When you monitor mortgage rate movement, you’re usually looking at national averages determined by weekly rate information provided by lenders. While those rates give a picture of the “typical” mortgage rate, that’s not necessarily the rate you’ll get when applying for a mortgage.
It’s possible to get a better deal on your mortgage.
To qualify for a mortgage, most lenders require you to have a minimum credit score of 620, but lenders offer the lowest mortgage rates to consumers with excellent credit scores, around 740 and above.
You might also consider purchasing mortgage points, also known as discount points. This is an extra fee you pay upfront in exchange for a lower interest rate. Each mortgage point typically costs 1% of the purchase price of a home and will lower your mortgage rate by 0.25%.
A shorter-term loan like a 15-year or 10-year mortgage will have a lower interest rate than a 30-year fixed mortgage. Your monthly payments will be higher with a shorter-term loan because you’re paying the loan off in less time, but you’ll save big on interest.
Buying a home is likely the biggest transaction you’ll make in your lifetime. Regardless of the market, carefully assess your needs and what you can afford.
And don’t hold your breath for 2% mortgage rates.
Source: cnet.com
Apache is functioning normally
There’s a reason so many people have been struggling to purchase a home this year. Not only are housing prices elevated as a result of low inventory, but mortgages are expensive to sign.
As of this writing, the average mortgage rate on a 30-year loan is 6.82%, according to Freddie Mac. But rates have fluctuated a bit since the start of the year, and they’ll likely continue to do so based on general market conditions.
Meanwhile, most mortgage experts expect rates to cool later in the year. But how low will they go? That’s the big question.
Federal Reserve actions could lower borrowing costs for home buyers
The Federal Reserve raised interest rates 11 times between 2022 and 2023 to help slow the pace of inflation. While the Fed’s actions don’t always completely correlate to movement in mortgage rates, they have the potential to influence them. As such, it’s not a big surprise that mortgages are currently expensive to sign.
There’s some good news, though. Despite the fact that inflation remains stubbornly elevated at over 3%, which is above the 2% level the Fed is targeting, it’s cooled nicely since 2022. As such, the Fed still thinks it can move forward with three interest rate cuts in 2024, the first of which could come within months.
What this means is that mortgage rates could fall quite a bit between now and the end of the year. But it’s tough to get a handle on how low they’ll go.
More: Check out our picks for the best mortgage lenders
Is it conceivable that mortgage rates will drop to about 6%? Yes. Whether they’ll go lower is the big question, and that’s a hard one to answer right now.
In January, the National Association of Realtors projected that mortgage rates would fall to 6.3% by the fourth quarter of the year. But if rates fall to 6.3% at the start of that quarter, they may be closer to the 6% mark by the end of it.
How to lock in the most competitive mortgage rate you can
It’s hard to know exactly how low mortgage rates will go in 2024. So instead of fixating on that, try to focus on steps you can take to set yourself up for a more attractive mortgage rate.
For one thing, try boosting your credit score. You can do so by paying bills on time and shedding some credit card debt. Checking your credit report for errors is also a great idea.
Also, try to work on reducing your debt-to-income ratio. That measures the percentage of your income that’s allocated toward existing debt payments. Paying off some credit card debt could help in this regard, too.
Finally, be prepared to shop around. You never know when one lender might have a better rate to offer you than another.
It’s fair to assume that mortgages will be less expensive to sign by the time 2024 gets close to wrapping up. But how much less expensive is a question that remains tough to answer.
Source: fool.com