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Mortgage rates drop below 5% for first time since April

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Average 30-year fixed-rate mortgage yield of 4.99% According to Freddie Mac, the week ending August 4 was down from 5.3% the week before. However, this is significantly higher than his 2.77% last year.

Interest rates surged early in the year, hitting a high of 5.81% in mid-June. But since then, economic concerns have made them more volatile.

“Mortgage rates have remained volatile with a tug-of-war between inflationary pressures and a clear slowdown in economic growth,” said Sam Cater, chief economist at Freddie Mac.

The ups and downs are expected to continue, he said.

“The high degree of uncertainty surrounding inflation and other factors is likely to keep interest rates volatile, especially as the Federal Reserve tries to navigate the current economic environment.”

George Latiou, manager of economic research at Realtor.com, said the drop came as surprisingly positive reports on several economic indicators offset rumors of a looming recession.

“With no clear direction, the market is keeping mortgage rates in a tighter range.

In response to high inflation, the Fed raised its benchmark interest rate by 75 basis points last week.

The Federal Reserve does not set interest rates that borrowers pay directly on mortgages. Instead, mortgage rates tend to track his 10-year Treasuries. But they are indirectly affected by the Fed’s efforts to keep inflation in check.

As for consumers, he said they continue to spend, accumulating a record $16.2 trillion in household debt, according to data released this week by the Federal Reserve.

“The big question for consumers is whether companies will overreact to recession fears and start cutting labor costs,” Latiou said. “A sharp decline in employment could have a direct impact on people’s ability to continue spending, especially with today’s high inflation.”

Affordability remains the biggest challenge

Rising home financing costs are already impacting buyers. Sales of both new and existing homes have fallen in recent months as buyers take a break from looking.

With inflation dominating income and rising borrowing costs reducing purchasing power, buyers are beginning to realize that homes cannot be made more affordable.

A year ago, buyers who paid a 20% down payment on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage with an average rate of 2.77% were less likely to make monthly mortgage payments, according to Freddie’s research. The amount was $1,277. Mac.

A homeowner buying the same priced home today at an average interest rate of 4.99% would pay $1,673 a month in principal plus interest. That’s about $400 more each month.

Ratiu said home sales are declining as rising borrowing costs cap the affordability for many buyers. At the same time, inventories are improving.

“This has brought a welcome sign to the property market this year: price cuts,” Latiou said.

But according to Realtor.com, some sellers are also reaching out, feeling they missed the peak of the market as buyers dropped out. Homeowners who own equity may not be forced to sell in this slow market where financing costs are high.

“As the number of new listings softens, concerns arise that early improvements in inventories could prove elusive as we approach the second half of the summer,” Ratiu said.

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