Some would-be home buyers are waiting for borrowing costs to drop even lower. Is that a wise strategy?
Mortgage rates have remained in the mid-6% range in recent weeks—the 30-year fixed-rate loan was at a 6.46% average this week, according to Freddie Mac. But some aspiring home buyers may still be waiting for even lower rates before they make a move, hoping to get a better deal on borrowing costs, even though rates are dramatically lower than they were a year ago, when they were above 7%.
“Although mortgage rates have stayed relatively flat over the past couple of weeks, softer incoming economic data suggest rates will gently slope downward through the end of the year,” says Sam Khater, Freddie Mac’s chief economist. “Earlier this month, rates plunged and are now lingering just under 6.5%, which has not been enough to motivate potential home buyers. We expect rates likely will need to decline another percentage point to generate buyer demand.”
Despite recent steadiness in rates, mortgage applications for home purchases fell 5% this week and are 8% lower than a year ago, the Mortgage Bankers Association reports. “Even with lower mortgage rates, potential buyers might be more selective now that there are more options,” says Joel Kan, an economist with the MBA.
The National Association of REALTORS® reported this week that For Sale inventory of existing homes has risen by 20% compared to a year ago, giving buyers more choices and increasing seller competition.
“The other point to note is that, yes, rates are lower—but they’re still 6.5%, which is not low for those borrowers out there with sub-5% rates,” Kan says. The majority of current mortgage holders have rates below 5%—many even below 3%—from when they purchased a home years earlier. This has made many homeowners reluctant to move.
Freddie Mac reports the following national average with mortgage rates for the week ending Aug. 22:
- 30-year fixed-rate mortgage: averaged 6.46%, down slightly from last week’s 6.49% average. A year ago, rates averaged 7.23%.
- 15-year fixed-rate mortgage: averaged 5.62%, dropping from last week’s 5.66% average. A year earlier, rates averaged 6.55%.
Source: nar.realtor
