While mortgage rates have fallen sharply in recent months. This decline presents an important opportunity for would-be homebuyers to finally gain access to the housing market. Today, the average interest rate on a 30-year fixed mortgage is 6.35%. This is down from 6.5% as recently as last week. This decline is the largest one-week drop in mortgage rates this year. That’s a huge change, especially considering the average rate was above 7% as recently as this January.
Mortgage rates closely track the yield on the 10-year Treasury bond, so mortgage rates are falling. This bond yield is a product of today’s economic environment. The Federal Reserve Chair Jerome Powell has held the federal funds rate at 4.25% to 4.5% at its past five meetings. Despite these challenges, it has failed to take any decisive corrective action over the last nine months. This relative calm has led to some speculation from investors about the potential for subsequent Fed rate cuts. They forecast at least three quarter-point reductions by year’s end, with odds currently at just over 76%.
The median sales price of a home in the United States has consistently hovered around the $300,000 mark. It climbed to $410,800 during the three-month period ending in June. This is a drop from the $423,100 median price in the fourth quarter last year. That’s a sign the market is definitely cooling, which should entice buyers who have one eye glued to the mortgage market.
Liu, a long-time industry expert, noted that the market is missing the boat because it’s pricing in expectations of lower near-term rates. Consequently, today’s mortgage rates look much more appealing.
We know that even when mortgage rates go down only one percentage point, it means big savings for borrowers. This one simple change can save them thousands, if not tens of thousands, of dollars in extra yearly expenditures. This new-found affordability in borrowing will likely have many people thinking about jumping into the housing market.
Julia Fonseca, a professor at the University of Illinois at Urbana-Champaign’s Gies College of Business, helps first-time homebuyers. She encourages them to focus on their specific situations rather than trying to game out what future market conditions might be.
“I would be guided by your needs and your personal financial situation, rather than try to make predictions about future prices and future interest rates,” – Julia Fonseca.
Combined with the recent spike in mortgage rates, this paints a picture of an evolving housing landscape. Such a change might encourage those prospective home buyers who previously balked at elevated borrowing costs. Timing the market, he warns, is an exercise in futility.
“Trying to time the market or predict future rate movements is notoriously hard to do,” – Julia Fonseca.
Homebuyers — particularly first-time buyers — are weighing their choices with a newfound caution. This confluence of high mortgage rates and home prices makes for a confusing, yet hopeful, time for them. Buyers are strongly encouraged to reassess their financial preparedness and specific goals with these ever changing dynamics.
