Mortgage rates are falling, but affordability is still low

Even as the Federal Reserve hiked interest rates by another 75 basis points to stem runaway inflation, mortgage rates started falling – but some economists are warning that homebuyers who can still afford it shouldn’t wait to see it last.

According to CNBC, the average interest rate on 30-year fixed-rate mortgages fell to 5.22% on Thursday after the Fed’s news on Wednesday. By Friday, it had fallen even further to 5.13%. The decline also comes after the Bureau of Economic Analysis’s gross domestic product report revealed that GDP fell by 0.9%. Interest rates had previously reached a new high of just over 6% in mid-June.

Lower interest rates, as well as sellers starting to slash prices to lure buyers, have impacted prospective homebuyers, with Redfin reporting a modest uptick in searches and home tours over the past month.

“The housing market appears to be heading into equilibrium after demand has leveled off,” said Daryl Fairweather, Redfin’s chief economist, in a press release. “We may still see some surprises when it comes to inflation and Fed rate hikes, but for now, easing mortgage rates has brought some relief to buyers who have been battered by last month’s rate hike.”

However, others warn that the general rise in interest rates could still lead to a rise in mortgage rates as the Fed’s benchmark hike is on target.

“[The rise in interest rates] means that mortgage rates will continue to rise and that we will see some setback in the housing market,” said Dana Peterson, chief economist at The Conference Board, on Yahoo Finance Live. “And that’s a function of, yes, very high prices, which affects affordability, but also increases interest rates.”

The Fed is expected to hike rates again this year, which could bode badly for both those looking to buy and those looking to sell a home. While some sellers are accepting lower prices for their homes and lowering their listing prices, affordability is still at rock bottom for most buyers due to higher interest rates and still above average home prices. In the last five years, the average house price has skyrocketed. ATTOM Data Solutions reports a median home selling price of $235,000 in 2017. By the fourth quarter of 2021, that median had increased to $423,600. The median of the second quarter of 2022 continued to rise, with a median selling price of $440,300, according to St. Louis Fed data.

A home sold at this average price with a 20% down payment and a 5.54% interest rate would have an estimated monthly payment for a 30-year mortgage of $2,008 per month. With an interest rate of 5.13%, the payment drops to $1,918 per month. However, compared to a low rate of 2.93% in January 2021, the payments are an additional $500 per month since the same retail price would then have had a payment of $1,471 per month.

Photo: AFP / Frederic J. BROWN Mortgage rates are falling, but affordability is still low

Fry Electronics Team

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