Mortgage Rates Dip Below 5%; Buyers Get ‘A Second-Chance Opportunity’

After weeks of escalating borrowing costs, home buyers are getting a second chance to lock in lower rates. The 30-year fixed-rate mortgage fell to an average just below 5% for the week ending Aug. 4, Freddie Mac reports.

With rates dipping in recent days, mortgage applications are increasing for the first time in five weeks, the Mortgage Bankers Association reported this week. Applications for a home purchase increased 1% last week following weeks of declines as home buyers and refinancers got spooked by higher mortgage rates.

Will the latest lower rates stick around? “Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth,” says Sam Khater, Freddie Mac’s chief economist. “The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment.”

Last week, National Association of REALTORS® Chief Economist Lawrence Yun predicted that the Federal Reserve’s decision to raise its short-term fed funds rate by 75 basis points was unlikely to do any further damage to mortgage rates. “The mortgage and longer-term bond markets have settled down in recent weeks,” Yun says. “The peak in mortgage rates may have already occurred. That’s because oil and gasoline prices have been falling lately and, hence, will lessen broader inflationary pressures. Lower inflation means less aggressive interest rates by the Federal Reserve.”

Any decline in mortgage rates is likely relief to potential home buyers. “Though still higher than a year ago, the current rate of under 5% means around a 12% reduction in monthly payments compared to when mortgage rates peaked at 6% just two months ago,” Yun says. “Mortgage rates could soon turn upward but are unlikely to retouch the 6% mark. Any dip should be viewed as a second-chance opportunity.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 4:

• 30-year fixed-rate mortgages: averaged 4.99%, with an average 0.8 point, dropping from last week’s 5.30% average. Last year at this time, 30-year rates averaged 2.77%.
• 15-year fixed-rate mortgages: averaged 4.26%, with an average 0.6 point, falling from last week’s 4.58% average. A year ago, 15-year rates averaged 2.10%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.25%, with an average 0.3 point, dropping from last week’s 4.29% average. A year ago, 5-year ARMs averaged 2.40%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

Dip in Mortgage Rates Little Consolation to Squeezed Buyers

With volatile mortgage rates driving home buyers from the market, economists are skeptical that a dip in borrowing costs this week will have a meaningful impact. The 30-year fixed-rate mortgage fell to an average of 5.3%—still nearly double what it was a year ago—for the week ending July 28, according to Freddie Mac.

“Purchase demand continues to tumble as the cumulative impact of higher rates, elevated home prices, increased recession risk and declining consumer confidence take a toll on home buyers,” says Sam Khater, Freddie Mac’s chief economist. “It’s clear that over the past two years, the combination of the pandemic, record low mortgage rates and the opportunity to work remotely spurred greater demand. Now, as the market adjusts to a higher rate environment, we are seeing a period of deflated sales activity until the market stabilizes.”

The National Association of REALTORS® reported this week that contract signings were down 20% in June compared to a year earlier. NAR is forecasting that by the end of 2022, home sales will have fallen 13% on an annual basis. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023,” Lawrence Yun, chief economist for the National Association of REALTORS®, said Wednesday during NAR’s quarterly Real Estate Forecast Summit.

Freddie Mac reports the following national averages for mortgage rates for the week ending July 28:

• 30-year fixed-rate mortgages: averaged 5.30%, with an average 0.8 point, dropping from last week’s 5.54% average. Last year at this time, 30-year rates averaged 2.80%.
• 15-year fixed-rate mortgages: averaged 4.58%, with an average 0.8 point, falling from last week’s 4.75% average. A year ago, 15-year rates averaged 2.10%.
• 5-year adjustable-rate mortgages: averaged 4.29%, with an average 0.3 point, dropping from last week’s 4.31% average. A year ago, 5-year ARMs averaged 2.45%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

Market to Ease Despite High Home Prices

Even though national GDP contracted for the second quarter in a row and home sales have fallen for five straight months, property prices are likely to continue growing because of low inventory, Lawrence Yun, chief economist for the National Association of REALTORS®, said Wednesday during NAR’s quarterly Real Estate Forecast Summit. Yun offered his economic and housing market predictions for the remainder of this year and into 2023 at the event.

One of the most unusual aspects of the current economy is the labor market, Yun said. There were more job openings than unemployed people in May—with the difference being nearly two to one, according to Bureau of Labor Statistics data. Construction job openings were at a record high in January, and these unfilled jobs point to a potential slowdown in the housing market, Yun said.

Both existing-home sales and pending home sales have been falling or stagnant for months, NAR data shows. Rising mortgage rates have combined with low inventory to exert downward pressure on the market. “Closing activity will continue to sink even more,” said Yun. “Some [potential home buyers] don’t want to pay higher monthly rates. Others can’t.”

Hope for Consumers

There are bright spots in the market, such as gradually increasing inventory, which is good news for consumers. “They no longer have to make an offer after seeing only one [house],” Yun said. “They can see three or four. It’s returning to a normal process.”

Despite some homes with high list prices beginning to languish on the market, the overall lack of inventory is still leading to price gains. “Even after reductions, prices are still higher compared to one year ago and much higher compared to before the pandemic,” Yun added.

Though the Federal Reserve is expected to hike interest rates several more times this year, Yun said mortgage rates won’t rise much further because lenders have already priced in the potential increases. This can mean increased opportunity for consumers. “We may be topping out independent of what the Fed will do,” Yun said. “Rates will go a little up and a little down. It may be a good idea to lock in when the rates are down.”

He also noted that foreign investment in U.S. real estate is still well short of pre-pandemic levels but predicted that international interest is likely to increase as travel restrictions ease.

Finally, Yun predicted that in 2022, total home sales will be down 13% from the previous year, home prices will be up 11% and total dollar volume will be down 2%. For 2023, he predicted no increase in home sales, a 2% hike in prices and a 2% increase in dollar volume.

Current Trends and Market Opportunities

Jessica Lautz, NAR’s vice president of demographics and behavioral insight, also provided data from the June REALTORS® Confidence Index. Among her key findings:

• Median days on market for homes nationwide hit a record low of 14.
• The average number of offers per property dipped to 3 from a previous high of 5.
• Approximately 30% of buyers are waiving inspection and appraisal contingencies—a number that has held fairly steady since the start of the pandemic.
• The share of all-cash buyers currently stands at 25%. This number has actually decreased from a high of 35% in 2014.
• First-time buyers are still being sidelined and make up 30% of the market. Historically, they make up around 40%.

In addition, Lautz offered five “touch points”—opportunities for REALTORS® to reach out to clients in the current climate.

1. Twelve percent of buyers are purchasing homes virtually—and they want a REALTOR® to assist with the process.
2. Remote work continues to influence buying trends: 34% of buyers want features that enable them to work from home.
3. Consumers continue to have a skewed view of the typical amount required for a down payment. Thirty-five percent of buyers believe a down payment of 16% to 20% is required; 10% of buyers believe they need a down payment of more than 20%. However, the typical down payment for a first-time buyer is only 6% to 7%. For a repeat buyer, it’s 17%.
4. There is value in promoting energy efficiency in listings: Forty-four percent of REALTORS® say it’s “somewhat valuable,” and 19% say it’s “very valuable.”
5. Seven in 10 buyers report a desire for the latest in heating and cooling, windows and doors, insulation, lighting and appliances; however, the typical home purchased is 29 years old and unlikely to have the newest features. This disconnect presents an opportunity for REALTORS® to contact previous clients about satisfaction with their current home and any improvements they have made.

View slides from the Real Estate Forecast Summit.

©National Association of REALTORS®
Reprinted with permission

2nd Historic Fed Rate Hike Unlikely to ‘Further Damage’ Mortgage Borrowers

With skyrocketing inflation and mounting recession fears, the Federal Reserve made another aggressive move Wednesday, raising its benchmark rate by three-quarters of a percentage point for the second time this year to try and tame the economy. However, higher mortgage rates may not necessarily be on the horizon as a result, says Lawrence Yun, chief economist for the National Association of REALTORS®.

“This is unlikely to do any further damage to mortgage rates,” Yun says. “The long-term bond market on which mortgage rates are generally priced has mostly priced in all future actions by the Fed and may have already peaked with the 10-year Treasury shooting up 3.5% in mid-June.” The Treasury was at 2.8% following the Fed’s decision.

“It is possible that the 30-year fixed-rate mortgage may settle down at 5.5% to 6% for the remainder of the year,” Yun says. “Still, mortgage rates are significantly higher now compared to one year ago, which is why home sales have been falling.”

The 30-year fixed-rate mortgage has doubled over the past year. Last week, rates averaged 5.54%, up from 2.78% a year ago, according to Freddie Mac.

Mortgage Rates Become Housing’s Wild Card

The Fed warned on Wednesday that more hikes to its short-term benchmark rate are likely to come. “As the Fed continues to march forward with rate increases aimed at countering inflation, the path for mortgage rates is less well-defined,” says Ruben Gonzalez, chief economist at Keller Williams.

Some economists believe mortgage rates may even fall following the Fed’s action on Wednesday. “The Fed meeting is more likely to bring about lower mortgage rates than higher mortgage rates as long-term rates respond to growing recession worries,” says Greg McBride, Bankrate’s chief financial analyst.

The housing market has slowed dramatically as home buyers face the double-whammy of rising mortgage rates and record-high home prices. NAR’s latest housing data shows the slowdown: Contract signings are down 20% year over year, existing-home sales have fallen 14%, and new-home sales are at their lowest level since April 2020.

If mortgage rates could stabilize near current levels, future home sales would likely then be dependent on jobs and consumer confidence, Yun notes. “Therefore, home sales could soon stabilize within a few months and then steadily turn upwards from early next year,” Yun says. NAR has updated its forecast and is predicting home sales to fall by 13% in 2022 and start to rise in early 2023.

©National Association of REALTORS®
Reprinted with permission

Remote Online Notarization Is One Step Closer

The U.S. House of Representatives passed a bill Wednesday evening to expand the availability of remote online notarization (RON) nationwide, a key advocacy priority for the National Association of REALTORS®. The bipartisan SECURE Notarization Act now goes to the Senate for consideration.

RON allows a notary and signer in different physical locations to safely and securely execute electronic documents using two-way audiovisual communication.

Nearly half of states have expanded RON during the COVID-19 pandemic, enabling real estate professionals to facilitate closings safely and securely. But because of the patchwork of state laws, agents in other states had to adapt to drive-by closings and other social-distancing methods. NAR pressed lawmakers throughout the pandemic to pass a national RON bill while simultaneously working on the state level to enact changes.

“REALTORS® have always been leaders in technology in the real estate profession. NAR supported RON even before the pandemic,” says Shannon McGahn, NAR’s chief advocacy officer. “But now more than ever, this progress makes sense. REALTORS® want to devote their time to helping home buyers, not on paperwork.”

Even as COVID-19 becomes less of a factor, virtual sales and closings will remain in demand. In June 2022, NAR reports, 12% of sales took place virtually.

Speaking about the House bill, McGahn says, “This measure establishes minimum standards to ensure strong consumer protections while providing certainty for interstate commerce.”

©National Association of REALTORS®
Reprinted with permission

Pending Home Sales Tumble as More Buyers Get Priced Out

Pending home sales fell in June as surging mortgage rates and record-high home prices are making home buyers more cautious in moving forward. The median existing-home price hit an all-time high in June ($416,000). Homes were 80% more expensive in June than they were in 2019, the National Association of REALTORS® reports.

Nearly a quarter of home buyers who purchased a home three years ago would be unable to qualify to buy a median-priced home at today’s elevated prices, NAR reports.

NAR’s Pending Home Sales Index—a forward-looking indicator of home sales—posted an 8.6% decline in June compared to May. Pending home sales are down 20% compared to a year ago.

Contract signings fell in all four major regions across the country last month. The West saw the largest monthly decline, with pending home sales dropping by one-third in the past year, NAR reports.

“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” says Lawrence Yun, NAR’s chief economist. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”

Still, NAR has updated its forecast and is now predicting home sales to fall by 13% in 2022. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023,” Yun says.

©National Association of REALTORS®
Reprinted with permission