Mortgage Rates Hit New Low, Keeping Rising Home Prices In Check

Mortgage rates have hit yet another record-breaking low, this time falling to 2.88% on 30-year, fixed-rate loans. That’s down from 2.99% last week and 3.60% a year ago. It’s the lowest average rate ever recorded, according to mortgage purchaser Freddie Mac.

“The resilience of the housing market continues as mortgage rates hit another all-time low, giving potential buyers more purchasing power and strengthening demand,” says Sam Khater, chief economist at Freddie Mac.

That “more purchasing power” part might be surprising, especially as home prices rise and incomes fall. But according to the latest data from title insurer First American, it’s true. Low rates increased the average buyer’s budget by around $15,000 in July. If rates were to fall to 2.7%, it would bump overall homebuying power by $32,000.

Research from data and analytics firm Black Knight backs it up, too. According to its latest Mortgage Monitor report, buying power is up 10% year-over-year. Last month, it took just 19.8% of the median monthly income to afford the average mortgage payment—the lowest share in at least four years.

In six states—Arkansas, Iowa, Kentucky, Louisiana, Maryland and West Virginia—affordability actually reached its lowest point in over 25 years. 

“Despite eight consecutive years of rising home prices, July’s record-low mortgage rates, which fell below 3% for the first time on July 16, have made purchasing the average-priced home for a median wage earner the most affordable since late 2016,” says Ben Graboske, president at Black Knight. “While record levels of job losses are certainly still weighing on the housing market and broader economy, for those shopping for a home now, buying power has clearly trended up,” 

Low rates don’t just help new buyers, though. Existing homeowners can win out, too. 

Black Knight’s data shows that at a 2.875% average rate—just a hair shy of this week’s average, 19.5 million homeowners could reduce their interest rate by at least 0.75%. If rates drop to 2.75%, nearly 21 million would fall into the same category.

The average savings for these refinancers would be just under $300 per month.

Fortunately, for buyers and homeowners who haven’t yet pulled the trigger, it seems there’s still time to act—and maybe lots of it. Fannie Mae’s July Housing Forecast predicts rates will remain between 2.8% and 3% through the end of 2021.

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Starts, Permits Rise In Latest Data

New home construction had all but ground to a halt in recent months, as the coronavirus pandemic swept the nation, closing cities and businesses down with it.

Fortunately, it appears those days are numbered. According to data released by the Census Bureau this morning, housing starts were up 4.3% in May, with 934,000 new starts recorded for the month. 

Building permits were up even more, rising 14.4% over April. Single-family permits specifically jumped 11.9%.

Though this certainly bodes well for the supply-strapped housing market, it doesn’t mean relief will be immediate. It typically takes about eight months for a permit to become what’s called a housing completion—or a finished property ready for sale. That means buyers won’t see the fruits of May’s labors until early next year.

Still, it’s a light at the end of the tunnel, and Doug Duncan, chief economist at Freddie Mac, says it seems that “housing construction has turned a corner.”

“Today’s new residential housing construction report from the Census Bureau was somewhat weaker than expected, but we believe it suggests that the bottom in home construction has passed,” Duncan says.

According to Duncan, single-family starts should see a stronger June thanks to meager housing supply and record-low mortgage rates, which have sent applications to purchase a home rising for the last nine weeks straight.  

Surging buyer demand should help inspire builders, too. Real estate brokerage Redfin released data earlier this week showing homebuying demand up 25% over pre-pandemic levels. Bidding wars are also increasing in many spots across the country.

“In the coming months, we’ll see a resurgence of housing starts from the meager numbers we saw in May,” says Holden Lewis, home and mortgage expert for NerdWallet. “Builders are eager to meet the demand for new homes.”

The latest data from the National Association of Home Builders proves as much. According to the NAHB’s latest survey, builder confidence jumped from 21 points to 58 this week. Anything over 50 indicates general optimism among builders.

“As the nation reopens, housing is well-positioned to lead the economy forward,” says Robert Dietz, chief economist at NAHB. “Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising. And buyer traffic more than doubled in one month even as builders report growing online and phone inquiries stemming from the outbreak.”

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