08/11/2024
Mortgage Rates Drop to 15-Month Low
The 30-year’s quarter-percentage-point fall was the biggest weekly decline in around nine months
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Mortgage rates fell to the lowest level in more than a year, raising hopes for relief in the battered U.S. housing market.
The average rate on the standard 30-year fixed mortgage fell around a quarter percentage point to 6.47%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac, a low not seen since May 2023 and the sharpest weekly decline in around nine months.
If sustained, lower mortgage rates could help shepherd some Americans back into a market that they have been priced out of in recent years. Home sales last year fell to their lowest level in nearly three decades, and they have been similarly sluggish in 2024.
Mortgage rates have roughly doubled since the Federal Reserve began its campaign to curb inflation in early 2022, which has dramatically pushed up the monthly cost to borrow for a home.
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Inventory of homes for sale has been rising but it remains well below historic averages, which could keep a damper on sales activity unless supply picks up. But the past week’s big drop is raising hopes that it could spur more buyer interest.
“Mortgage-rate relief is arriving quicker than many expected,” said Ralph McLaughlin, senior economist at Realtor.com. (News Corp, parent of The Wall Street Journal, operates Realtor.com.)
Mortgage rates aren’t directly tied to the Fed’s moves. But they tend to loosely follow the yield on the benchmark 10-year Treasury note, which rises and falls based on expectations for the economy. Yields have fallen this month amid fears about a slowdown in the U.S. that sparked a global market selloff. Investors have also ramped up bets that the Fed will cut interest rates, starting next month. Some are betting that the Fed will reduce rates by as much as half a percentage point.
MJ Agostini, a real-estate agent in Berlin, Conn., said activity has picked up in the past two weeks as mortgage rates have declined.
“The rates came down a little, so all of a sudden we got a spurt of activity,” she said. “I think a lot of people saw that as an opportunity.”
Lower rates won’t be enough to lure back all potential buyers. Nikkol McCord, who lives in Crown Point, Ind., has been looking to buy her first home since October. She has found few options that meet her needs within her $270,000 budget, and she lost out on four homes to higher bidders. “I’m super frustrated,” she said.
McCord, 32, plans to keep house hunting and reassess in a few months if she still hasn’t bought a home. But she isn’t holding out for lower mortgage rates.
“I do think that as soon as they drop, the listing prices are going to go up, so I think it’s going to end up being a moot point anyway,” she said.
Mortgage applications rose last week, though they were driven by an increase in refinance activity rather than new purchases, according to the Mortgage Bankers Association.
“Home buyers might be biding their time to enter the market” should rates continue to move lower, said Joel Kan, vice president and deputy chief economist at MBA.
Rates add up quickly when it comes to mortgages: A difference of a few percentage points can translate to hundreds of thousands of dollars in interest over the life of a 30-year loan. Many would-be buyers have found themselves priced out of the market in recent years, while would-be sellers have been hard pressed to give up mortgages they locked in before rates went up.
That has worsened supply challenges that have kept prices near record highs.
“Rates are going to go up, they’re going to go down,” said Sam Khater, chief economist at Freddie Mac. “The bigger structural issue is the lack of inventory. That’s not going away.”
Jamie Wagner, a marketing manager in central Massachusetts, wanted to move his family to a town with better public schools before his eldest child started school this fall. But with a less than 3% mortgage rate they locked in on their current home in 2018, he and his wife have struggled to make the math work.
The couple gave up and enrolled the six-year-old in kindergarten at a private school this summer after rates failed to go down. At $9,000 a year, the private-school tuition was a fraction of the cost of a new mortgage at current rates, Wagner said. He is still hopeful that rates will fall before his four-year-old starts school.
“You feel kind of trapped,” he said. “We know cuts are coming, but with when and how far they go, there is a lot of uncertainty.”
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