Mortgage Rates Retreat, but Home Prices Forge Ahead | Mortgages and Advice

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Mortgage rates retreated after three consecutive weeks of increases, with the 30-year fixed rate falling to 7.31%. Most fixed interest rates declined, while adjustable rates increased somewhat or stayed about the same.

Here are the current average mortgage rates, without discount points unless otherwise noted, as of July 20:

  • 30-year fixed: 7.31% (down from 7.39% a week ago).
  • 20-year fixed: 7.41% (down from 7.44% a week ago).
  • 15-year fixed: 6.6% (down from 6.68% a week ago).
  • 10-year fixed: 6.74% (up from 6.73% a week ago).
  • 5/1 ARM: 6.23% (equivalent to 6.23% a week ago).
  • 7/1 ARM: 6.53% (up from 6.46% a week ago).
  • 10/1 ARM: 6.62% (up from 6.61% a week ago).
  • 30-year jumbo loans: 7.35% (down from 7.43% a week ago).
  • 30-year FHA loans: 6.35% with 0.05 point (down from 6.61% a week ago).
  • VA purchase loans: 6.62% with 0.04 point (down from 6.78% a week ago).

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Indicator of the Week: Sticky Housing Inflation

“As inflation slows, mortgage rates decreased this week. Still, the ongoing shortage of previously owned homes for sale has been a detriment to homebuyers looking to take advantage of declining rates. On the other hand, homebuilders have an edge in today’s market, and incoming data shows that homebuilder sentiment continues to rise.”

– Sam Khater, Freddie Mac’s chief economist, in a July 20 statement

Indeed, the latest Existing-Home Sales report from the National Association of Realtors shows that the median sales price was $410,200 in June – the second-highest ever recorded, just marginally below the peak of $413,800 set a year ago.

The price jump is attributed to low inventory of existing homes for sale, with many current homeowners reluctant to sell and trade in a record-low 3% rate for today’s 7% rates. It’s an inevitable dilemma of supply versus demand, with the number of buyers far outweighing the number of homes for sale.

“Home sales fell, but home prices have held firm in most parts of the country,” says Lawrence Yun, NAR’s chief economist. “Limited supply is still leading to multiple-offer situations, with one-third of homes getting sold above the list price in the latest month.”

On top of that, current mortgage rates are nearly a point-and-a-half higher than they were at the same time last year, Bankrate data shows. Here’s how that could impact monthly payments for today’s homebuyers:

June 2022 June 2023
30-Year Fixed Mortgage Rate* 5.76% 7.14% (+1.38 percentage points)
NAR Median Existing-Home Sales Price $413,800 $410,200 (-$3,600, -0.9%)
Monthly Principal & Interest Payment** $1,934 $2,214 (+$280, +14.5%)

*Assumes 0 discount points paid

**Assumes a 20% down payment

But, as Khater alludes to, existing homes aren’t the only option for prospective homebuyers, who are increasingly choosing new construction homes as a friendlier alternative. The proof is in the data.

  • Census Bureau: Sales of new single-family homes have been rising steadily since the beginning of the year, from 649,000 in January to 763,000 in May.
  • Mortgage Bankers Association: Mortgage purchase applications for newly built homes were up 26.1% annually in June, marking the fifth month in a row of year-over-year increases.
  • National Association of Home Builders: This surge in interest for new construction homes has strengthened homebuilder confidence, which has improved for the past seven consecutive months.

“New home purchase activity continues to be a bright spot, as both new home applications and home sales were up on an annual basis,” says Joel Kan, MBA’s vice president and deputy chief economist. “With existing inventory still held back by homeowners, prospective buyers have turned to newly built homes instead.”

Still, the higher price tag of new construction homes can be a barrier for those who could benefit from the cooler competition. The median sales price of new construction homes sold in May was $416,300, compared with $396,400 for existing homes sold during the same month.

There’s a glimmer of hope for those who are open to buying a new construction home: Many homebuilders are offering incentives like price cuts and interest rate buydowns, NAHB says. Reduced mortgage rates and sales prices can help bring homeownership within reach for buyers who are struggling with affordability in the existing-home market.

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