Mortgage rates plunged by a half-point over the past two weeks, with the fixed 30-year rate dropping below 5% for the first time since April, according to Freddie Mac. Meanwhile, interest rates for the fixed 15-year term and the 5/1 adjustable-rate mortgage converged at 4.26% and 4.25%, respectively. Here are the current rates as of Aug. 4:
- 30-year fixed: 4.99% with 0.8 point (down from 5.3% a week ago, up from 2.77% a year ago).
- 15-year fixed: 4.26% with 0.6 point (down from 4.58% a week ago, up from 2.1% a year ago).
- 5/1-year adjustable: 4.25% with 0.3 point (down from 4.29% a week ago, up from 2.4% a year ago).
“Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth. 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.”
– Sam Khater, Freddie Mac’s chief economist, in an Aug. 4 statement
This year so far, the Federal Reserve has been struggling to contain inflation, which is running well above the central bank’s 2% annual target. In late July, Fed officials voted to raise the federal funds rate by another 75 basis points, continuing an aggressive monetary policy despite signs of slowing gross domestic product growth and the possibility of a recession.
While conventional wisdom dictates that mortgage rates generally follow the Fed’s benchmark rate, that’s not always the case. As pointed out in last week’s column, mortgage activity is being stifled by affordability challenges and uncertain economic conditions. So in an effort to spur demand, some lenders actually lowered their rates.
The slowdown in real estate activity may prove to be advantageous for homebuyers who, not long ago, felt priced out of the market. Mortgage borrowers are getting a much-needed reprieve from rapidly rising interest rates. Home price appreciation, while still at historically high levels, has started to show signs of slowing.
Additionally, buyers are starting to gain more leverage in negotiations, particularly when it comes to contingencies, says Kevin Parker, vice president of field mortgage originations at Navy Federal Credit Union.
“We are seeing signs that it’s swaying from the far end of being a seller’s market to being more in the middle,” says Parker. “We’ve started seeing contingencies back in contracts – appraisal, finance, home inspection. We know it’s going to swing back to the middle. Sellers are losing a little bit of leverage.”
Indicator of the Week: Weathering the Storm
In today’s tumultuous real estate market, the sun is beginning to peek out through the rain clouds. As competition continues to ease, some homebuyers might wonder if they should weather the storm, waiting for conditions to become even more favorable by putting off their search for a few months.
However, Parker recommends that buyers don’t try to time the market. He says that buying a home is still a good investment for consumers who are looking to build long-term wealth, and there’s really no telling how long it will take for the market to stabilize further.
“I think we are going to see some more stability in the housing market,” Parker says. “It’s just a matter of, are we talking about six weeks from now, six months from now or a year?”
In the meantime, renters who wait out the market will continue to be impacted by rising housing costs. Whereas homeowners are able to lock in their mortgage payment for an extended period, annual rent hikes have become the unfortunate reality for many Americans. Rents have risen 24.6% – or about $400 per month – since June 2019, according to the Zillow Observed Rent Index.
Naturally, it depends on a person’s unique situation, but “for individuals who know they’re going to stay in a particular area, they have some stability with their job or income, going from renting to buying is huge,” Parker says.
If you’re considering making the switch from renting to homeownership, Parker recommends using Navy Federal’s rent vs. buy calculator to determine whether it’s worthwhile.