Home buyers have another shot at snagging mortgage rates under 3% this week. The 30-year fixed-rate mortgage fell to 2.99%, defying expectations that below 3% rates were now gone.

The Federal Reserve recently warned that it will soon begin tapering its bond purchases, which is expected to move rates up. The National Association of REALTORS® is predicting that the 30-year fixed-rate mortgage will average 3.5% by mid-2022.

But over recent weeks, mortgage rates have remained just above or just below 3%.

“Mortgage rates continue to hover at around 3% again this week due to rising economic and financial market uncertainties,” says Sam Khater, Freddie Mac’s chief economist. “Unfortunately, with the expectation that both mortgage rates and home prices will continue to rise, competition remains high and housing affordability is declining.”

Still, Nadia Evangelou, NAR’s senior economist and director of forecasting, writes on the association’s blog that even if mortgage rates do climb to 3.5%, that is still a historical low. Demand for housing is expected to remain robust. NAR is forecasting about 6 million existing homes to be sold in 2022, about the same as last year.

Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 6:

• 30-year fixed-rate mortgages: averaged 2.99%, with an average 0.7 point, falling from last week’s 3.01% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 2.23%, with an average 0.7 point, dropping from last week’s 2.28% average. A year ago, 15-year rates averaged 2.37%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.52%, with an average 0.3 point, rising from last week’s 2.48% average. A year ago, 5-year ARMs averaged 2.89%.

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

Builders are up against short supplies of a variety of materials needed to build homes, such as wood paneling, ceiling joists, and pipes. They’re searching for substitutes to keep construction schedules on time, but the process is also adding to their costs.

Supply shortages have become a common story in the homebuilding industry over the past year. More than 90% of builders say they have faced a shortage of appliances, framing lumber, plywood, and oriented strand board (a type of engineered wood), according to a survey from the National Association of Home Builders conducted in May. Eighty-seven percent of builders also cited shortages of windows and doors.

A winter storm in Texas earlier this year diminished supplies for several building materials. That prompted Straub Construction in Shawnee, Kan., to switch to different insulation materials for its projects after that storm made it difficult to get some types of petroleum-derived roof insulation boards. But that switch has added about $20,000 to the costs for the construction of two apartment building projects they’re building. The alternative by not switching was to wait six to nine months for the boards.

“I’ve been in the industry for 30 years and never seen anything like this,” Parker Young, president of Straub Construction, told The Wall Street Journal.

Builders are showing more willingness to pay for the substituted materials in order to try to avoid construction delays. They fear that not doing so could cost them some lost sales.

Demand for new homes has surged. Shortages of materials first started when the pandemic began and some factories temporarily shut down. Factories have had a tough time catching up since then due to the high demand, staffing shortages, and other challenges.

The uncertainty of the availability of materials is challenging builders to price out homes. “We’re just concerned that this is not going to get any better right now,” Tony Rader, vice president of National Roofing Partners in Coppell, Texas, told The Wall Street Journal.

Lawmakers on Capitol Hill announced Thursday that they’ve reached a deal to lift the national debt ceiling through December while continuing to work on a longer-term budget solution. The deal comes a day after Charlie Oppler, president of the National Association of REALTORS®, met with President Joe Biden and other business leaders at the White House on Wednesday to discuss the issue.

Biden called the meeting to pressure Congress to act before Oct. 18, which is when Treasury Secretary Janet Yellen says the country could default on its debt payments. Yellen said the consequences of a default would be “devastating.”

“With more than $8 trillion in mortgage debt backed by the federal government, the real estate sector is highly susceptible to market instability,” Oppler said in a statement following the White House meeting. “A debt default would unleash unnecessary and unknown harm on the economy and our 1.5 million members, most of whom are small business owners. And rising interest rates would serve a devastating blow to the homeownership dreams of countless American families. We encourage Congress to keep working on a long-term debt ceiling solution to maintain stability and faith in the American economy.”

Last month, NAR and other leading trade organizations sent a letter to Congressional leadership urging action on the debt limit. The letter read: “We have no collective preference for the manner or legislative vehicle you use to resolve this critical issue and protect the full faith and credit of the United States, but inaction—or even the possibility of inaction—can agitate U.S. financial market stability broadly.”

©National Association of REALTORS®
Reprinted with permission

Rising home prices have meant most homeowners have seen significant gains in equity over the past year. That may prove to be a critical buffer to help owners hit hard by economic uncertainty during the pandemic avoid foreclosure.

In the second quarter, the average annual equity gain for borrowers was $51,550, five times that of a year ago, according to CoreLogic’s latest Equity Report.

“While the coronavirus pandemic created economic uncertainty for many, the continued acceleration in home prices over the last year has meant existing homeowners saw a notable increase in home equity,” Molly Boesel, chief economist at CoreLogic, says in a column at the real estate research firm’s website. “The accumulation of equity has become critically important to homeowners deciding on their post-forbearance options.”

During the Great Recession, borrowers underwater on their mortgages were facing plummeting home prices. Nowadays, however, most borrowers who are behind on their mortgage payments can tap into their equity and sell their home rather than lose it to foreclosure, Boesel says.

That said, some homeowners may still be at risk. The states with high negative equity have seen the lowest home price appreciation compared with the national average. The following are the places most at risk for foreclosure and distressed sales, according to CoreLogic’s analysis.

Millennials have been a closely watched group in real estate for years, and forecasters have long made predictions about their entrance into homeownership. The beliefs about this massive segment of potential buyers have been significant—they favor renting over buying, they just want to live in the city, and they must have their parents’ help to buy.

Jessica Lautz, vice president of demographics and behavioral insights at the National Association of REALTORS®, recently blogged about the most common myths about millennials at the association’s blog. Here are some myths she busted:

Myth 1: Millennials aren’t interested in homeownership.

The homeownership rate for those under the age of 35 is lower than previous generations at the same age. However, millennials are still active in the housing market. They are facing plenty of challenges in obtaining homeownership: low housing inventories, competition, and rising home prices. But they are the largest generation of home buyers currently in the market at 37%, Lautz notes.

Myth 2: Millennials just want to live in the city.

Millennials love the suburbs after all. The majority of older and younger millennials have purchased a home in the suburbs; one-fifth of these young adults purchased in small towns, Lautz says. “The affordability of suburban areas is a driver,” Lautz noes. “Younger millennial buyers place a top priority on being close to friends and family while purchasing.”

Myth 3: Millennials need parents’ funds to buy.

The majority of millennials use their own savings to buy. Nearly a third of older millennials use proceeds from their previous home sale as a down payment on their next home. But millennials aren’t shy about accepting some help from their parents either: Twenty percent of millennials ages 31 to 40 and 28% between 22 to 30 report receiving a gift or loan from family and friends to purchase a home, Lautz notes.

Myth 4: If millennials would save more, they could buy.

Millennials have been hit with a lot of bills—housing in particular. The costs of rents have surged and that’s made it difficult to afford homeownership. “Younger millennials are spending more on housing, education, and slightly more on health care,” Lautz notes. “Younger boomers, in comparison, spent more on transportation, food away from home, apparel and services, and entertainment.”

The dollar value of mortgages home buyers are taking out is soaring as they try to afford higher home prices.

The average amount for a mortgage averaged $410,000 last week, according to data from the Mortgage Bankers Association. That marks the highest average mortgage amount since May.

“With home price appreciation continuing to run hot, increasing more than 19% annually in July, applications for larger loan amounts continue to outpace lower-balance loans,” says Joel Kan, the MBA’s associate vice president of economic and industry forecasting.

While home prices continue to rise, they are inching up by smaller annual gains than they have been. The National Association of REALTORS® reported a 14.9% annual gain in home prices for August’s existing-home sales.

Also, more housing inventory is coming onto the market. Nearly one-third of the 50 largest metros saw increases in the number of newly listed homes compared to last year, according to a new report from realtor.com®. That said, there are still fewer homes for sale than a year ago.

As buyers face higher home prices, they’ll need to set a budget and stick to it as they continue to face competition for homes. Most financial experts recommend homeowners limit their spending to 30% of their take-home pay for housing. That 30% also considers additional expenses of homeownership, like property taxes, homeowners insurance, private mortgage insurance (if applicable), and homeowners association fees.

The 30-year fixed-rate mortgage averaged 3.01% this week, posting a sharp rise after spending nearly four months below 3%. Economists expect mortgage rates to continue to increase modestly over the next few months.

“Mortgage rates rose across all loan types this week as the 10-year Treasury yield reached its highest point since June,” says Sam Khater, Freddie Mac’s chief economist. “Many factors led to this increase, including the Federal Reserve communicating that it will taper its support of the capital markets, the broadening of inflation, and emerging energy supply shortages, which compound other labor and materials shortages.”

An increase in mortgage rates over the next few months—even though expected to be slight—“will likely have an impact on home prices, causing them to moderate slightly after increasing over the last year,” Khater adds.

Still, mortgage rates are hovering near their record lows. “Consumers shouldn’t panic,” Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the association’s blog. “Keep in mind that even though rates will increase in the following months, these rates will still be historically low.” NAR forecasts the 30-year fixed-rate mortgage to average 3.5% by mid-2022.

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 30:

• 30-year fixed-rate mortgages: averaged 3.01%, with an average 0.7 point, up from a 2.88% average last week. A year ago, 30-year rates averaged 2.88%.
• 15-year fixed-rate mortgages: averaged 2.28%, with an average 0.6 point, increasing from last week’s 2.15% average. A year ago, 15-year rates averaged 2.36%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.48%, with an average 0.3 point, increasing from last week’s 2.43% average. A year ago, 5-year ARMs averaged 2.90%.

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