money Homebuyers race to capture recent drop in mortgage rates
Budget-conscious homebuyers scrambled to lock in lower mortgage rates after rates last week experienced their largest single-day drop since 2009.
The volume of purchase mortgage applications increased 4% last week, according to the Mortgage Bankers Association, with the average rate on the 30-year fixed mortgage falling 60 basis points from 7.22% to 6.62% on Thursday, according to Mortgage Daily News, which tracks daily mortgage rates. The dramatic drop followed a decline in bond yields after October’s inflationary reading came in better than expected.
Still, economic uncertainty and market volatility prompted some lenders to act conservatively before slashing rates, making it harder for buyers to capitalize on the decline.
“I got really excited on Friday, my current list of pre-approvals were going to be able to get a point and a half lower,” Adriana Perezchica, president of Via Real Estate Group in Washington State, told Yahoo Money. “But that all changed yesterday morning when my loan officer texted me she was afraid that interest rates will go back up this week.”
Last Thursday, Freddie Mac’s weekly rate survey, which captures rates from Monday to Wednesday and compares them with the previous week, reported that the average 30-year mortgage had topped 7%.
The report came on the same day the government released new consumer prices data — which showed inflation cooling — causing the yield on the 10-year Treasury to plunge by more than 32 basis points to 3.816%, below its recent average of 4%. Mortgage rates, which track the direction of the yield, soon followed, though most lenders “partially passed along” that decline, according to Keith Gumbinger, vice president of HSH.com.
“From what I can tell, that's what's happening at the moment,” Gumbinger told Yahoo Money last week. "If the Treasury rally proves more durable, mortgage rates could ease a bit from there... but there's no way to know that at present.”
Since then, rates have moved sideways. As of Wednesday, rates had edged up to 6.64%, according to Mortgage Daily News. Still, it can be expensive for lenders to pass on all of those savings, especially if rates rise again.
“If you significantly improve your rates quickly, the current locks will want to float down, which is costly for the lender,” Jason Sharon, owner and broker at Home Loans Inc., told Yahoo Money.
In a float-down, lenders will lower the locked rate a borrower has secured already by at least a quarter of a percentage point to reflect some of the movement in rates.
Borrowers who haven't yet locked in a rate may not get a quote as low as they thought, which happened to Perezchica's borrowers. Still, some relief is better than nothing.
“It does make a significant difference on how much a buyer's buying power and monthly payment,” Perezchica said. “It is worth mentioning there’s a tremendous emotional and mental impact that interest rates have on them.”
Buyers still in the market can also soften the financial impact of higher rates by opting for government or adjustable-rate mortgages, which are known to offer lower rates.
For instance, as of Wednesday, the interest rate on a 30-year fixed rate loan from Rocket Mortgage was 6.75%. By comparison, Veterans Administration (VA) and Federal Housing Administration (FHA) 30-year fixed loans offered interest rates at 5.99% – nearly a full quarter point lower.
“Brief dips in rates do occur... but what matters is how long they last. Folks need time enough to react," Gumbinger said. "Unless they have their finger on the pulse of the market nearly constantly, they may miss such events."
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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