On Monday, a trio of researchers from the San Francisco Fed released an economic letter pondering what was different about the latest housing boom.
The reason they’re asking this question is because home prices are now nearly back to their pre-recession peak. Uh oh?
In some states, they’re actually higher, but I suppose nationally they’re still below.
Obviously this has some folks worried we could be in for another housing crisis seeing that the peak prices seemed ridiculous back in 2006, less than 10 years ago.
The good news, in their eyes, is that this time things are different. Famous last words? Probably, but let them tell you why.
During the prior housing boom, both the home price-to-rent ratio and household leverage (as measured by mortgage DTI) increased together in what they refer to as “a self-reinforcing feedback loop.”
Basically, home prices kept climbing and credit kept loosening to keep up. So you had home prices that were out of reach that could only be purchased with increasingly flexible financing terms.
So we saw zero down mortgages, stated income mortgages, option arms, which allowed borrowers to make a negative amortization payment, and other exotic loan features.
Of course it all came crashing down, but we were able to bounce back over the past decade thanks to reduced housing inventory, super low mortgage rates, better underwriting, and so on.
This Time It’s Different
The researchers claim it’s a lot different this time around because there’s a “less-pronounced increase in housing valuation” coupled with a decline in household leverage.
In other words, home prices haven’t risen as much relative to rents, which are skyrocketing, and those who do buy homes are putting more money down and taking on healthier monthly payments.
While there are zero down options kicking around, most new homeowners put down more money when buying these days.
Interestingly, even though there are low-down payment options, such as FHA loans, which require just 3.5% down, or the new Fannie/Freddie 3% down option, the market might actually demand higher.
You see, it’s hard to get your offer accepted these days, so coming to the negotiating table with your 3% or 3.5% down payment might not get much notice.
Instead, the sellers might favor the buyer willing to put down 10% or 20%.
Additionally, even though there are low-down payments programs available, borrowers actually need to qualify these days.
You can’t just say you make $10,000 a month working the drive through window anymore. Yes, that probably happened a lot in 2006.
But even the researchers are quick to point out in their own paper that, “the phrase “this time is different” should be met with a healthy degree of skepticism.”
It seems they know themselves that it’s foolish to think like this, though they go on to talk about how things appear a lot better than prior to the earlier crash.
For instance, the home price-to-rent ratio reached an all-time high in early 2006, but currently sits about 25% below the bubble peak. You can partially thank surging rents for that.
Front-end DTI ratios (housing payments relative to income) also hit an all-time high in late 2007, meaning homeowners were highly leveraged at a time when home prices were topping out.
We all know what happened next.
Where Do We Go From Here?
Now things get interesting. While it’s great that this latest boom has kept home prices in check relative to rents, and household mortgage debt isn’t completely out of control, it doesn’t mean we’re good to go.
I’m sure there was a time during the prior boom (and other booms for that matter) when everything looked peachy.
Then a few short years later, we’re all asking ourselves how this could have happened again.
As the researchers aptly point out, “policymakers and regulators must remain vigilant to prevent a replay of the mid-2000s experience.”
But will they? We recently introduced 3% down payments and Fannie and Freddie are pushing lenders to offer the product more to cash strapped borrowers.
There’s also chatter about another FHA premium cut to spur lending as if anyone is holding back for that reason at the moment.
Home prices are also creeping higher and higher to a point where we’re at the very least facing an “affordability crisis.”
In fact, some parts of the country won’t be affordable for a full 30 years to some prospective home buyers.
And how exactly will we unload all these pricey homes in the next several years, especially if mortgage rates go up, as they’re projected to?
Perhaps raising acceptable LTVs again will be the answer. Or maybe non-QM lending will finally get legs with some new form of fancy stated income underwriting.
I don’t know, but it sure feels like we’re headed down the very same path we just got off a few years ago.
But maybe this just isn’t your father’s (or mother’s) housing market any longer. Gone are the days of 20% down payments, a mortgage that is held by your local bank, and slow but steady appreciation.
Today, it’s rampant speculation, hedge funds, booms and busts followed by more booms and busts, perhaps because real estate has become such an investment obsession as opposed to a place to lay your head.
LOS ANGELES (AP) — Would-be homebuyers are willing to take on sharply higher mortgage payments, even as home prices have begun to pull back this year.
The median monthly payment listed on applications for home purchase loans jumped 14.1% in May from a year earlier to an all-time high $2,165, according to the Mortgage Bankers Association. The May figure also represents a 2.5% increase from April.
“Homebuyer affordability eroded further in May as prospective buyers continue to grapple with high interest rates and low housing inventory,” Edward Seiler, the MBA’s associate vice president of housing economics, said in a release last week.
The size of the mortgage and the interest rate on the loan influence how large the monthly payment on a 30-year fixed-rate mortgage will be. Those two housing market variables have ballooned in recent years.
Home price growth accelerated during the pandemic, fueled by ultra-low mortgage rates and bidding wars as competition for relatively few properties on the market intensified. Even after the market cooled last summer as the Federal Reserve raised interest rates in its bid to slow economic growth and tame inflation, home price appreciation remained resilient until this February, when the median U.S. home price slipped 0.2% from a year earlier — its first annual decline in 13 years, according to the National Association of Realtors.
Home prices have kept falling since, most recently sliding 3.1% in May from a year earlier to a median $396,100, according to the NAR.
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Still, the national median home price remains nearly 40% higher than it was three years ago. Meanwhile, the average rate on a 30-year home loan climbed to a new high for the year this week at 6.81%, mortgage buyer Freddie Mac said Thursday. That’s more than double what it was two years ago.
The combination, along with a stubbornly low level of homes for sale, is driving mortgage payments higher, pushing the limits of what many homebuyers can afford.
Consider that two years ago the median national monthly payment on home loan applications was $1,320.48, or 63.4% less than what it was last month.
A recent forecast by Realtor.com calls for the average rate on a 30-year mortgage to drop to 6% by the end of the year. Lower rates could motivate some homeowners to sell, adding more sorely needed inventory to the market. However, lower rates could also spur more buyers to come off the sidelines, which would heighten competition and push up prices.
After extraordinary home value growth characterized a frenzied housing market in 2017 and 2018, this year’s slowdown felt like a welcome return to normalcy for many in the industry. And Zillow is predicting more of the same in 2020, with the market set to stabilize near historic norms.
Changing
tastes as millennials make up a growing share of home buyers will
impact the market. Homes will get smaller, bold colors and prints
will return to home designs and demand will stay high as more and
more people reach typical home buying age.
Here’s Zillow’s predictions for housing in 2020:
Homes will continue to shrink
The sprawling, suburban homes that Baby Boomers coveted will increasingly become a relic of the past in 2020 and into the next decade as the median square footage of newly built, single-family homes will fall for the fourth time in five years. The typical U.S. home has shrunk by more than 80 square feet since 2015i. Millennials, the largest group of buyers in 2020, are proving to be have much different tastes and lifestyles than their parents’ generation. Many prefer homes in urban areas with an abundance of amenities within walking distance over the mansions in the exurbs that boomers are vacating.
The U.S. will not enter a recession in 2020
As recently as July, half of experts surveyed by Zillow predicted a recession would begin in 2020. However, the U.S. economy has remained resilient to expected headwinds like ongoing trade volatility and the possibility of a stock market retreat. Consumer spending has picked back up – reflecting healthy consumer confidence – job creation is on a steady path and annual wage growth has stayed at or above 3% since October 2018. Economic and home value growth should continue into 2021, although perhaps at a slower pace than in recent years.
Home value and rent growth will be slower and steadier
Home value growth is expected to grow 2.8% from December 2019 to December 2020, according to a survey of more than 100 housing experts and economistsii. That’s down from 4.7% annual growth in October, the latest month for which data is available. Zillow expects rent growth to continue accelerating into the spring, before dipping below 2% by the end of 2020.
Mortgage rates will stay low, keeping housing demand high
Mortgage rates fell markedly in 2019 and are expected to remain low for the bulk of 2020. That will keep demand strong and continue to fuel decent price growth in the nation’s most broadly affordable markets. But low rates don’t help overcome the upfront hurdle of high down payment requirements, pushing buyers in expensive areas to fan out in search of areas they can better afford.
Sales will climb again after a downturn in 2018
For-sale inventory is near historic lows, but that doesn’t mean a dearth of sales. In fact, the low inventory is largely a result of high demand from buyers that snatch up homes as soon as they hit the market. There are more and more potential buyers as the large Millennial generation is reaching peak homebuying age in greater numbers each year, and they are benefiting from low mortgage rates, an increase in new construction permits and technology – such as Zillow Offers and other iBuyers – that is reducing friction in the market.
Color will make a comeback
Goodbye, Hygge. Hello, color! Fun will return to home design in the form of bold prints, lively wallpaper and brightly hued walls. After a decade of Scandinavian modern design that dominated retail and social media feeds as Americans embraced neutrals, minimalism and clutter-free living, expect a shift toward playful, creative design. Look for color to be injected in unexpected ways in kitchen cabinetry and appliances, in lighting fixtures and on interior doors and moldings.
“With the housing market stabilizing from the drama of the price recovery and the slowdown during 2019’s home shopping season, we have a rare moment of calm to reflect on what housing might look like in the year to come,” Zillow’s Director of Economic Research Skylar Olsen said in a statememt. “If current trends hold, then slower means healthier and smaller means more affordable. Yes, we expect a slower market than we’ve become accustomed to the last few years, but don’t mistake this for a buyer-friendly environment – consumers will continue to absorb available inventory and the market will remain competitive in much of the country. But while the national story is a confident one, housing in some manufacturing-heavy markets may see adversity. The struggle could be even more stark, since similarly affordable housing markets with a more balanced job profile may be 2020’s rising stars.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
Southern California home prices last month were unchanged from a year ago, the first time there hasn’t been a year-over-year decline since September 2007, according to DataQuick.
The median price paid for a home in the Southland last month was $285,000, a 1.8 percent increase from October.
Of course, the median is still 43.6 percent below the peak of $505,000 seen back in early and mid 2007, before the mortgage crisis got in full swing.
A total of 19,181 new and resale homes and condos sold in six Southland counties during the month, down from 22,132 in October, but 14.7 percent higher than the 16,720 sales seen a year ago.
DataQuick said sales have been pushed higher thanks to the first-time homebuyer tax credit, the record low mortgage rates, and “robust investor activity.”
“This market is still really lopsided. Foreclosures and short sales are huge factors,” said John Walsh, MDA DataQuick president, in a release.
“There’s still not a lot of discretionary buying and selling outside the more affordable markets. Anybody who can sit tight is doing just that. The market won’t fully rebalance itself until financing becomes available for the higher price ranges.”
Jumbo mortgages accounted for just 15 percent of all home purchases, compared to roughly 40 percent during the housing boom.
Meanwhile, adjustable-rate mortgages were used to finance only 4.1 percent of last month’s home sales; between 2000 and 2005, nearly half of Southland buyers chose ARMs.
FHA loans were used by 38.1 percent of buyers, the same as in October, and up from 34.5 percent a year ago.
Foreclosure resales made up only 39.1 percent of all Southland resales, the lowest total since May 2008; it was as high as 56.7 percent last February.
Yet more evidence has emerged that now is a great time to buy, with Redfin saying that bidding wars, in which multiple buyers compete to buy a home, are at their lowest point in 10 years.
Redfin says in its latest report that just 10% of offers on homes sold via its real estate agents this year faced competition from other bidders, down from 39% a year earlier.
But
the respite for buyers is likely to be short-lived, as Redfin says
that a combination of low mortgage rates and low housing inventory
across the country could lead to increased competition next year. As
such, bidding wars will likely ramp up again.
“Right
now, there are fewer homes for sale than we usually see this time of
year, and sales are picking up thanks in part to low mortgage
interest rates,” said Redfin’s chief economist Daryl Fairweather.
“All of the pieces are in place for bidding wars to become more
common and for the housing market to shift back toward the seller’s
favor next year. Now may be the last chance in the foreseeable future
for buyers to win a home without facing a bidding war.”
Redfin’s prediction is in line with a forecast from Realtor.com last summer, which also warns that buyers are likely to face increased competition on a more limited selection of homes for sale next year.
Some
cities are seeing intense competition from buyers even now, Redfin
said. For example, 34.8% of all offers on homes in the San Francisco
area were subject to bidding wars. Other cities, including San Jose
(20.5%), San Diego (15.6%), and Los Angeles (13.7%) are also seeing
more bidding wars than the average.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
More home buyers are being tempted onto the market by the incredibly low mortgage rates being offered, but they’re becoming increasingly frustrated at the limited choice of homes for sale.
The combination of an unseasonable surge in buyer demand and reduced housing inventories, there simply aren’t enough homes to satisfy everyone who’s looking, CNBC reported.
Indeed,
housing inventories nationwide fell 2.5% in September, compared to
the same month one year ago. But the situation gets even worse when
we consider the most affordable segment of the market. According to
CNBC, inventory of homes priced at $200,000 or less is down 10%
compared to a year ago, while the $200,000 to $750,000 segment saw no
change. Unfortunately, economists believe inventory in that price
range will also fall in the coming months.
“If,
or better yet, when inventory in this segment begins to take a
downturn, the vast majority of home buyers are going to feel its
effects as their options rapidly dwindle,” George Raitu,
realtor.com’s senior economist, told CNBC. “September inventory
trends, especially in the mid-market, may be the canary in the coal
mine that we could be headed for even lower levels of inventory in
early 2020.”
The
most likely result of this growing demand for homes and the shortage
of available options is that home prices will rise, which may
eventually help to reduce demand and balance things out.
But
right now, buyers are being increasingly tempted to have a look due
to the low mortgage rates on offer. According to Freddie Mac, the
30-year fixed-rate mortgage hovered around 3.5% in September, well
below the average of 5% we saw last November. And both new and
existing home sales have increased simultaneously, as rates decline.
Even
worse, it seems builders are unable to make up the shortfall. Robert
Dietz, chief economist of the National Association of Home Builders,
told CNBC that new construction is unlikely to be fast enough to
provide buyers with the options they want at affordable price points.
He said that just 10% of sales of newly built homes are priced at
$200,000 or less, whereas that percentage was at 40% just ten years
ago. He adds that the new home market is undersupplied by around 1
million housing units overall.
“We’ve
faced what has been called a perfect storm of supply-side
challenges,” Dietz said. “There has been an ongoing labor
shortage, we lack the necessary land and lots to build homes, we’ve
had building material cost concerns, and then probably the most
important factor has been higher regulatory costs since the Great
Recession.”
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
Housing supply in markets across the country is in extremely short supply, so much so that home buyers may well find it difficult to find a suitable property this spring.
Indeed, the country’s existing housing supply declined by its steepest year-over-year decrease for 4 years in January, falling by 13.6%, according to realtor.com. The supply of homes for sale in the U.S. is now at its lowest level since realtor.com began tracking the data in 2012, it said.
Worse
still, the shortage is unlikely to be relieved any time soon,
realtor.com said. Volume of newly listed homes is also down, by
10.6%, since last year.
Danielle
Hale, realtor.com’s chief economist, said that homebuyers in the
past year have taken advantage of low mortgage rates and more stable
listing prices, and the result has been a depletion of an already
limit inventory of homes to buy.
“With
fewer homes coming up for sale, we’ve hit another new low of for
sale-listings in January,” Hale said. “This is a challenging sign
for the large numbers of Millennial and Gen Z buyers coming into the
housing market this homebuying season as it implies the potential for
rising prices and fast-selling homes—a competitive market. In fact,
markets such as San Jose in Northern California, which saw inventory
down nearly 40 percent last month, are also seeing prices grow by 10
percent while homes are selling at a blistering pace of 51 days.”
The
shortage of homes is being felt across all price points, not only the
entry-level segment, although that’s where it remains most evident.
In January, there was a 19% drop in inventory of homes priced under
$200,000, while homes in the $200,000 to $750,000 price bracket fell
12%. And even in the upper tier of homes priced above $750,000,
inventory fell by 5.9%
As
inventories fall, home prices are rising. The median U.S. listing
price increased by 3.4 percent year-over-year, reaching $299,995 in
January.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
The era of low mortgage rates is over. Embracing this reality will hasten your owning a house that meets your needs.
Low rates flourished for 11 years, as the 30-year mortgage remained below 5% from February 2011 to April 2022. Since then, it has remained mostly above 5%, averaging 6.72% in June in Freddie Mac’s weekly survey.
Some forecasters predict that rates will decline over the next 12 months. But they don’t foresee rates dropping below 5% anytime soon. If you want to buy a home, it’s tempting to be in denial that this is happening. But as you start to accept that we’re now in a time of higher rates, you can achieve closure (literally, when you close on the purchase of a home).
“People are still working through their five stages of grief on this mortgage rate stuff,” says Lisa Sturtevant, chief economist for Bright MLS, the real estate listing service for the mid-Atlantic region. “And I think you have to reach the stage of acceptance at some point that certainly rates aren’t going to come down to where we were back during 2020 and 2021.” (When the median 30-year rate was 2.99%.)
Forecasters predict a modest decline in rates
Let’s brighten that grim outlook by detailing how Fannie Mae, the Mortgage Bankers Association and the National Association of Realtors all forecast a gradual, moderate decline in mortgage rates through at least the first three months of 2024.
Those three organizations are not alone in their prediction that mortgage rates will go down, but no one expects rates to plunge back to where they were two years ago.
“I still think we’re going to see rates stabilizing and then moving slowly down this year and we’re going to end 2023 at 6%,” Sturtevant says.
Danielle Hale, chief economist for Realtor.com, said in an email that “our base expectation is that it will take until the end of this year or early next year before mortgage rates get back to 6%.”
A dissenting voice comes from Zillow, where senior economist Orphe Divounguy said by email, “Buyers should not count on any dramatic rate falls in the next few years.” Mortgage rates, he said, will end 2023 above 6%.
One takeaway from these forecasts: Sure, mortgage rates might drop a little. Maybe. If the forecasters are right. But if you hold out for dramatically lower rates, you’ll probably wait in vain. And if they do fall substantially after you buy, you can refinance.
Inflation is the wild card
What if you want to do your own research? Economists monitor tons of data when forecasting mortgage rates. But if you ask them what regular folks should keep an eye on, they reply as one: inflation.
According to Hale, “It’s not linked one-to-one with mortgage rates, but an easing in the pace of general price increases will help bring mortgage rates down for two reasons.”
For starters, diminished inflation will hasten the end of Federal Reserve rate increases. Second, lenders will “stop baking in a larger inflation premium into mortgage rates.” They do that “to account for the fact that future dollars that are used to pay back the investment aren’t as valuable,” Hale explained.
Most people gauge inflation by the price of gasoline and eggs. Your boss’s boss’s boss swears by the consumer price index. The monetary policymakers at the Federal Reserve rely on an inflation measurement called core PCE, for personal consumption expenditures. “Core” means that energy and food (gasoline and eggs) are stripped out because their prices are volatile.
The Fed’s goal is to keep core PCE around 2%, but it has been higher than 3% for more than two years. From January through April (the latest data available), core PCE was 4.6% or 4.7%. Core CPI has been higher but falling.
“As long as inflation eases, that’s the main factor that will bring our mortgage rate down,” says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors.
But if inflation stays spitefully high, mortgage rates will remain elevated.
If you’re pining for 3% rates — they’re not coming back
Let’s say the Fed eventually succeeds in taming inflation to 2%. That will be worth celebrating, but it doesn’t necessarily mean mortgage rates will wander south of 5%.
The Mortgage Bankers Association forecasts the 30-year mortgage will dip below 5% toward the end of 2024, but Fannie Mae and the Realtors don’t predict rates will fall that far.
Do what makes you happy
It’s not realistic to put a home purchase on hold in the hope that mortgage rates will return to 2020 and 2021, when the 30-year mortgage held its breath under 4% the entire time. The median rate over the past 30 years is 5.77%. That’s the reality that we’ve returned to.
If you want to buy your first home, you’re probably going to pay well above 5% on a 30-year mortgage, and you’ll have to establish a budget with that in mind. If you’re a homeowner, you dread giving up your current low-rate mortgage and getting a higher-rate loan on the next house. That’s understandable, but as Miranda Lambert once sang, “there’s freedom in a broken heart.”
Whether you’re looking for a bigger place or a smaller home, or one better located for schools or your commute, you might end up satisfied — even after trading a low rate for a higher rate.
Average mortgage rates fell just a little last Friday. But last Thursday’s massive jump means they finished that week — and last month — higher than when they started them.
First thing, it was looking as if mortgage rates today might again barely budge. But that could change as the hours pass.
Markets will be closed tomorrow for the Independence Day holiday. And we’ll be back on Wednesday morning. Enjoy your celebrations!
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.129%
7.158%
Unchanged
Conventional 15-year fixed
6.638%
6.651%
Unchanged
Conventional 20-year fixed
7.506%
7.558%
Unchanged
Conventional 10-year fixed
6.997%
7.115%
Unchanged
30-year fixed FHA
6.672%
7.303%
Unchanged
15-year fixed FHA
6.763%
7.237%
Unchanged
30-year fixed VA
6.729%
6.937%
Unchanged
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
Recent reporting in the financial media makes me think mortgage rates are unlikely to see any significant and sustained falls until at least the fourth (Oct.-Dec.) quarter of 2023 and probably not until 2024.
And that’s why my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time last Friday, were:
The yield on 10-year Treasury notes edged down to 3.82% from 3.85%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly lower. (Good for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices inched up to $70.61 from $70.25 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,930 from $1,919 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — climbed to 84 from 80 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might again hold steady or close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Currently
To see sustained lower mortgage rates we need to see the inflation rate halving, the economy weakening, and the Federal Reserve stopping hiking general interest rates. And none of those looks likely anytime soon.
Some progress is being made on inflation. But not enough.
And the economy is showing extraordinary resilience. Last week’s gross domestic product (GDP) headline figure was 50% higher than many expected.
Meanwhile, the Fed seems highly likely to hike general interest rates by 25 basis points (0.25%) on Jul. 26. And there may well be at least one more increase after that in 2023.
Recession
As I’ve written before, our best hope for lower mortgage rates is a recession. That should weaken the economy, reduce inflation and perhaps cause the Fed to at least hold general rates steady.
Economists have been predicting an imminent recession for ages. And, not so long ago, I bought that line and was expecting one at any moment.
But, now, many big hitters aren’t expecting a recession until 2024. Yesterday, CNN Business listed a few of those making that prediction:
Bank of America CEO Brian Moynihan
Vanguard economists
JPMorgan Chase economists
Of course, others disagree, as economists always do. Some think a recession will still land later this year. And others believe there will be no recession at all.
This week
There are a few reports this week that could send mortgage rates up or down a bit. But Friday’s jobs report is the one most likely to have a decisive impact.
The consensus among economists is that the report will show 240,000 new jobs created in June compared with 339,000 in May. Anything lower than 240,000 might see mortgage rates tumble, which would be great.
However, we’ve witnessed economists making similar predictions for employment several times over recent months. And, nearly every time, their forecasts have greatly underestimated the resilience of the American labor market and therefore the American economy.
Of course, they might be right this time. Let’s hope so. But I shouldn’t hold my breath if I were you.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jun. 29 report put that same weekly average at 6.71%, up from the previous week’s 6.67%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert mortgage rate forecasts
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were published on May 23 and the MBA’s on Jun. 21.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.4%
6.2%
6.0%
5.8%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
LOS ANGELES — The average long-term U.S. mortgage rate rose this week, snapping a three-week pullback after reaching a high for the year in early June.
Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan rose to 6.71% from 6.67% last week. A year ago, the rate averaged 5.70%.
The increase brings the average rate back to where it was three weeks ago. On June 1, it averaged 6.79%, its highest level so far this year.
High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market that remains unaffordable to many Americans after years of soaring home prices and limited housing inventory.
The median monthly payment listed on applications for home purchase loans in May rose to $2,165, up 14.1% from a year ago and a 2.5% increase from April, the Mortgage Bankers Association said Thursday.
The average rate on a 30-year home loan is still more than double what it was two years ago, when the ultra-low rates spurred a wave of home sales and refinancing. The far higher rates now are contributing to the low level of available homes by discouraging homeowners who locked in those lower borrowing costs two years ago from selling.
The dearth of properties on the market is also a key reason home sales have been slow this year. Last month, sales of previously occupied U.S. homes were down 20.4% from as year earlier, marking 10 consecutive months of annual declines of 20% or more, according to the National Association of Realtors.
Low mortgage rates helped fuel the housing market for much of the past decade, easing the way for borrowers to finance ever-higher home prices. That trend began to reverse a little over a year ago, when the Federal Reserve began to hike its key short-term rate in a bid to slow the economy to lower inflation.
Global demand for U.S. Treasurys, which lenders use as a guide to pricing loans, investors’ expectations for future inflation and what the Fed does with interest rates influence rates on home loans.
All told, the Fed raised its benchmark rate 10 times, starting in March 2022. The central bank opted to forgo another increase at its meeting of policymakers earlier this month. Still, the Fed warned that it could raise interest rates two more times this year in its battle against inflation.
That open-ended approach has heightened uncertainty about the Fed’s next moves, which could lead to more volatile moves for mortgage rates.
The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, also rose this week, increasing to 6.06% from 6.03% last week. A year ago, it averaged 4.83%, Freddie Mac said.