Despite this year’s massive surge in borrowing costs, US mortgage rates posted their largest drop in more than two years.
Freddie Mac reported Thursday that the average 30-year loan rate declined to 5.10% from 5.25% last week. Despite the biggest decline since April 2020, rates remain well above last year’s level of 3.11%.
Even though rates fell for the second week in a row, their rapid rise over the past four months has started to affect demand. According to government data released this week, the number of new home sales, measured by signed contracts, has declined to the lowest level since the start of the pandemic lockdowns. Data released Thursday showed that pending home sales in the United States decreased for the sixth consecutive month in April.
It is encouraging news for the housing market as a whole that mortgage rates are leveling off, according to Joel Berner, Realtor.com’s senior economic research analyst. There is a dark and stormy mood in the current market, but a period of steady interest rates below recent highs will provide time for buyers, sellers, and builders to adjust to the new financial climate.”
In an effort to combat inflation, the Federal Reserve is raising interest rates, causing affordability concerns for buyers who are struggling to find properties. According to Mortgage Bankers Association data released Thursday, the median mortgage payment for new purchase applications rose 8.8% from a month earlier due to higher interest rates and higher home prices.
According to the current 30-year average, a borrower with a $300,000 mortgage would pay $1,628 per month, an increase of approximately $346 over last year’s payment.
The dip in interest rates will lower borrowing costs, however, home prices have been on the rise for the past two years, making it difficult for potential buyers to enter the market. The worsening affordability situation and economic uncertainty have raised concerns about the sustainability of the housing boom.
According to Sam Khater, chief economist at Freddie Mac, mortgage rates decreased for the second week in a row due to multiple headwinds facing the economy.
It is clear that the housing market has slowed despite the recent moderation in interest rates, and the deceleration is spreading to other sectors of the economy, such as consumer spending on durable goods.