June 22, 2018.
Freddie Mac confirms a drop in mortgage rates again this week, with rates decreasing for three out of the past four weeks. According to the latest Freddie Mac Primary Mortgage Market Survey, the 30-year fixed rate for a mortgage slid to 4.57 percent as of June 21, 2018. The 30-year fixed rate was 4.66 percent on May 24, 2018.
Inventory, not rates, slows home sales
The Freddie Mac PMMS shows that:
- Mortgage rates rose briefly last week with a total decline for three out of the last four weeks.
- After a notable increase in early 2018, mortgage rates balanced over the last three months, with moderate increases since March.
- Overall home sales have slowed in six out of the past nine months, reflecting a year-over-year trend, and likely indicating low supply levels.
Freddie Mac does not attribute lower home sales to rising mortgage rates, especially in the first-time buyer market. Home sales declined by 0.4 percent in May 2018, with home sales at $250,000 or less decreasing over the last year due to inventory shortage. Homebuyers in all price brackets need more inventory to boost housing sales, Freddie Mac says.
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Lower mortgage rates increase buying power
Generally, the lower the mortgage interest rate, the lower a homebuyer’s monthly mortgage payment. A lower mortgage rate could also allow a first-time buyer to afford a larger mortgage. A buyer who previously qualified for a mortgage up to $250,000, where demand is higher and inventory is lower, may now qualify for a loan amount where more inventory is available. Getting qualified for a mortgage at a lower rate now before rates rise again in the future can give a buyer more power — and often more options in areas with inventory shortage.
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NAR Chief Economist Lawrence Yun believes the current strength of the job market and economy should be increasing, not decreasing, annual home sales. “Incredibly low supply continues to be the primary impediment to more sales. But there’s no question the combination of higher prices and mortgage rates are pinching the budgets of prospective buyers, and ultimately keeping some from reaching the market.”
To support inventory, Freddie Mac Deputy Chief Economist Len Kiefer has advocated for new builds. “The broader economic environment remains favorable for home sales. But without new home construction and increased housing supply, home sales in the U.S. will have a hard time growing from current levels,” Kiefer said.
In the U.S., first-time buyers make up one-third of all homebuyers, the National Association of REALTORS® April 2018 Existing Home Sales report finds. First-time buyers are those most likely to be hindered by the housing inventory shortage but could benefit most from decreasing rates.
Many homebuyers who have been stalled by housing inventory shortage are moving fast to lock in a lower rate. Getting prequalified at today’s current rate, still sitting under 5 percent, will tell a buyer how much house they can afford and in what price range. Prequalification can be done online or via an app and only takes about 15 minutes.*
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Loan officers also offer extended rate locks to homebuyers who need added assurance. A rate lock can give buyers peace of mind by securing a low interest rate while a home is being built or when selling one house before closing on another. Rate locks on FHA, VA, and conventional loans may be available for up to 270 days. Some fees apply, depending on lock term.
Yun predicted earlier this month that mortgage rates will continue to climb higher. With currently low rates, housing inventory may be the only hindrance to homeownership. Getting prequalified at a lower rate can help to overcome this buying hurdle by making more inventory available. Start by taking the first step to homeownership and get prequalified in 15 minutes.*
*During normal business hours.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.