Mortgage Rates Just Fell
(AmericanProsperity.com) – Since March, the Federal Reserve has continued its attempt to cool the economy through interest rate hikes to combat inflation. Yet, the increases have made buying a home even more difficult as lending rates rose in parallel with the Fed’s increases. Still, mortgage rates dropped for the first time in months, giving some prospective buyers a glimmer of hope that purchasing a home might eventually become more affordable.
Mortgage Rate Dip
Joel Kan, Vice President of the Mortgage Bankers Association (MBA), recently reported that rates for 30-year fixed loans dropped by 0.1% from 7.16% to 7.06%. Still, rates for all loan types, except ARMs, remain near their highest level in 20 years, at least three percent higher than in 2021.
According to the MBA Vice President, inflation and the high lending rates have significantly impacted the housing market, making mortgages less affordable. Kan noted the deteriorating number of home sales and starts serve as proof.
Higher rates are compromising both new purchases and refinancing because existing homeowners who locked in low rates before the Fed began making increases are hesitant to sell or refinance at new, higher rates. The number of refinancing applications is down 80% from last year, according to Kan.
The Fed’s Fight
The marginal decrease in the 30-year mortgage rate resulted from the chilling effects the previously red-hot housing market felt after the Federal Reserve implemented its aggressive strategy against inflation. As the cost of money has increased, the amount of buyers who can qualify for financing has dropped, causing a sudden surge in the number of homes available for sale. Home prices have dropped in proportion to the number of pending sales.
The National Association of Realtors (NAR) reported the number of homes under contract fell again in September, the fourth month in a row. The number of houses under contract decreased by 10.2% in September from August and reflected a 31% decrease from last year.
In a recent statement, Lawerence Yun, the Chief Economist of the NAR, warned interest rates around 7% will probably linger because the Fed is still inching up interest rates against inflation indicators. Yun noted the detrimental effects of inflation and higher interest rates on the housing market, resulting in overall reduced market activity.
Like Kan, Yun said most homeowners are unwilling to part with their existing 3% interest rates to sell their current homes. The chief economist believes mortgage rates will remain high until inflation is under control. Once interest rates trend down again, buyers might experience greater purchasing power until housing prices escalate.
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