After a string of steady increases, mortgage rates fell this past week — a mixed blessing for the fragile U.S. economy.
The lower rate on a 30-year fixed mortgage is a relief for home shoppers who have been watching rates climb, but it’s also a sign that a recession could very well be around the corner as the market slows.
Rates tend to mirror 10-year Treasury yields, which have fallen as investors seek safer, more stable assets in the face of higher inflation and slower economic growth.
“Rising prices are eating into consumers’ paychecks, leaving many Americans with less money for discretionary spending,” says George Ratiu, senior economist with Realtor.com.
“In addition, with inflation outpacing pay raises, most workers are seeing their income fall behind, further straining the finances of buyers who are also facing higher borrowing costs.”
30-year fixed-rate mortgages
The average 30-year mortgage rate fell to 5.70% last week, down from 5.81% a week previous, housing finance giant Freddie Mac reported Thursday. A year ago at this time, the 30-year rate was averaging 2.98%.
“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” says Sam Khater, Freddie Mac’s chief economist.
“This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”
Austin real estate agent Lilly Rockwell says the market has already started favoring buyers and that she just helped a client negotiate a purchase for under list price.
“It’s fabulous. Finally. Tons of choices, very little competition,” she tweeted Thursday.
She’s also been advising clients to ask for seller credits — a cash payment the seller gives the buyer at closing — to help them buy down their mortgage rates.
Buying down your mortgage rate means making an upfront payment to your lender to reduce your long-term interest costs, and seller credits can help cash-light buyers take advantage of the option.
“I plan to deploy this strategy myself on a listing I have coming up next week and provide some rate buydown information to just proactively address concerns about interest rates,” Rockwell said. “It’s crazy how quickly the tables have turned!”
15-year fixed-rate mortgages
The rate on a 15-year fixed mortgage was averaging 4.83%, also down from the week previous when it averaged 4.92%. Last year at this time, the rate on a 15-year loan was around 2.26%.
Aside from a few exceptions, rates have been rising for most of 2022 following two years of record-low levels. They took a particularly sharp ascent in recent weeks as the Federal Reserve began raising its benchmark interest rate to curb skyrocketing inflation.
Still, analysts say it’s important to keep the recent spikes in perspective.
“Although rates are significantly higher than last year, they are still historically low, remaining below 6%,” says Nadia Evangelou, senior economist for the National Association of Realtors.
5-year adjustable-rate mortgages
The average rate on a five-year adjustable-rate mortgage, or five-year ARM, was 4.5% last week, up slightly from 4.41% the week previous. A year ago, ARMs were averaging 2.54%.
Rates for adjustable mortgages are tied to the prime rate. While interest costs start off low, they can surge once the initial fixed-rate period ends.
Some recent borrowers are taking out ARMs in hopes that they’ll be able to refinance into a lower, fixed-rate mortgage by the time the five-year term expires.
How the recent rate swings are affecting the market
Housing activity has undeniably cooled. Close to 12,000 fewer homes sold in April and May compared to the pre-pandemic average, according to the National Association of Realtors.
“It’s a fact that many households are impacted by higher mortgage rates as they no longer earn the qualifying income for the median-priced home,” Evangelou says.
Homebuying, she says, became 15% more expensive in the second quarter — with buyers now needing to earn $104,000 to qualify for a loan on a typical property.
Another change is that more homeowners are listing their properties compared with a year ago at this time. Prices, however, have yet to see any meaningful dips.
In fact, the median price of a home hit a record $450,000 in June, 17% higher than the same month last year, according to Realtor.com.
“At that price, combined with today’s fixed rate for a 30-year loan, homebuyers are looking at monthly mortgage payments of about $2,100 — before adding in taxes, insurance or fees — more than $790 higher than June of 2021,” Ratiu says.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
BofA Securities maintains Amazon.com at ‘buy’ with a price target of $154.00
Six people in critical condition, one still missing after Paris blast – prosecutor
© Reuters. French firefighters and rescue forces work after several buildings on fire following a gas explosion in the fifth arrondissement of Paris, France, June 21, 2023. REUTERS/Gonzalo Fuentes
PARIS (Reuters) – Six people remained in a critical condition and one person was believed still missing on Thursday, one day after a blast ripped through a street near Paris’ historic Latin Quarter, the city’s public prosecution office said. “These figures may still change,” prosecutor Maylis De Roeck told Reuters in a text message, adding that around 50 people had been injured in the blast, which set buildings ablaze and caused the front of one to collapse onto the street. Of two people initially believed missing, one has been found in hospital and is being taken care of, the prosecutor said, adding: “Searches are ongoing to find the second person.” Authorities have not yet said what caused the explosion, which witnesses said had followed a strong smell of gas at the site. The explosion led to scenes of chaos and destruction in the historic Rue Saint Jacques, which runs from the Notre-Dame de Paris Cathedral to the Sorbonne University, just as people were heading home from work. It also destroyed the facade of a building housing the Paris American Academy design school popular with foreign students. Florence Berthout, mayor of the Paris district where the blast occurred, said 12 students who should have been in the academy’s classrooms at the time had fortunately gone to visit an exhibition with their teacher.
“Otherwise the (death toll) could have been absolutely horrific,” Berthout told BFM TV. She said three children who had been passing by at the time were among the injured, although their lives were not in danger.
4 big analyst cuts: Alcoa & DigitalOcean shares drop on downgrades
Here is your Pro Recap of the biggest analyst cuts you may have missed since yesterday: downgrades at Alcoa, DigitalOcean, Teleflex, and Xcel Energy.InvestingPro subscribers got this news in rapid fire. Never be left in the dust again.Alcoa stock drops on Morgan Stanley downgrade Alcoa (NYSE:) shares fell more than 3% pre-market today after Morgan Stanley downgraded the company to Underweight from Equalweight and cut its price target to $33.00 from $43.00, as reported in real time on InvestingPro.The firm sees a significant decline in consensus estimates, and as negative earnings revisions materialize, it believes the stock will face downward pressure and underperform.The analyst’s estimates for EBITDA in Q2, 2023, and 2024 are substantially lower than the consensus. The stock is currently trading above its historical average. The firm said its downward revisions in earnings estimates and price target are attributed to the company’s high operating leverage to aluminum prices.DigitalOcean stock plunges on downgradePiper Sandler downgraded DigitalOcean (NYSE:) to Underweight from Neutral with a price target of $35.00. As a result, shares plunged more than 5% pre-market today.The company reported its last month, with revenue beating the consensus estimate, while EPS coming in worse than expected. Furthermore, the company provided a strong outlook, which was above the Street estimates.2 more downgradesTeleflex (NYSE:) shares fell more than 3% yesterday after Needham downgraded the company to Hold from Buy, noting that UroLift expectations may still be too high.According to Needham, their checks indicate that urologists are reducing their use of UroLift due to its retreatment rates, reimbursement cuts, and increasing use of competing procedures. This is also supported by their Google Trends data analysis, which indicates decreasing search interest in UroLift.BMO Capital downgraded Xcel Energy (NASDAQ:) to Market Perform from Outperform and cut its price target to $64.00 from $69.00 to reflect the lower-than-expected terms of the company’s regulatory settlement in Colorado.Amid whipsaw markets and a slew of critical headlines, seize on the right timing to protect your profits: Always be the first to know with InvestingPro.Start your free 7-day trial now.
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