Despite the Fed raising interest rates, the housing market isn’t likely to slow as much as expected.
Typically, mortgage rates rise when the Fed Reserve raises interest rates, which it has done twice this summer, bringing the Federal Funds rate to 2.5%. Though this was initially the case, mortgage rates have recently declined. In June, rates were at 6.28%. Now they are 5.05%.
Origin Bank loan originator G.P. Theriot explained that isn’t always the case: “Rates have gone down because we were already pricing in the rate hike that was coming.” Theriot explains that mortgage lenders had anticipated the upcoming Fed increases and prepared ahead of time, resulting in the lowered rates buyers are seeing now.
In June, mortgage applications were 12% lower than the previous year, according to the Mortgage Bankers Association (MBA).
“Higher mortgage rates and heightened economic uncertainty cooled borrower demand in June, leading to new-home purchase applications declining to the lowest level since April 2020,” says MBA economist Joel Kan.
Existing home sales have dropped, according to the National Association of Realtors. Total existing home sales fell 5.4% from May to June. Since June 2021, sales have gone down 14.2%.
Lower mortgage rates undoubtedly mean a break for prospective home buyers. If a homebuyer had a $200,000 mortgage with a 6.28% rate in June, their monthly payment would be $1,235. That same loan amount now with the 5.05% rate would have a $1,080 monthly payment.
Lower rates may increase the number of people eligible to buy a home, but finding affordable housing will still be a challenge. House payments are 50% higher than they were last year, according to Fortune.
