Mortgage rates jump by nearly a half point

·Personal finance writer
·4 min read

Mortgage rates jumped nearly a half point this week, reversing last week’s temporary dip.

The rate on the 30-year fixed mortgage increased to 5.55% from 5.13% the week prior, according to Freddie Mac. While the rate remains lower than the 5.81% registered in June, it’s over 2 percentage points higher than the start of the year.

Rates continue to keep price-conscious homebuyers on the sidelines as record home prices and affordability stifle demand. Those still in the market to purchase are taking advantage of thin competition to negotiate better deals at closing.

“The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market,” Sam Khater, Freddie Mac’s Chief Economist said in a new release. “Home sales continue to decline, prices are moderating, and consumer confidence is low. But, amid waning demand, there are still potential homebuyers on the sidelines waiting to jump back into the market.”

First-time buyers show signs returning

Demand for mortgages hit its lowest point since 2002 this month, according to the Mortgage Bankers Association survey for the week ending August 19, due to depressed purchase and refinance activity. Purchase activity slid 2%, compared with the week prior, and was 21% lower than the same week a year ago.

But potential signs emerged that some first-time homebuyers have returned to the market.

Applications for government mortgages — such as those from the Federal Housing Administration, Department of Veterans Affairs, and the Department of Agriculture, all popular choices among first-time buyers — increased 4%, according to the MBA. Demand for loans at the lower end of the market also registered a jump, the MBA reported, just as purchase activity at the high end of the market began to weaken.

According to Keith Gumbinger, vice president of HSH.com, some buyers in today’s market aren’t thinking about interest rates as the most important factor when purchasing.

“If you can afford a higher interest rate on a house that you love, you’re going to want to go after the house you love,” Gumbinger told Yahoo Money. “Another way to think about it is that folks don’t necessarily spend a lot of time thinking about what they’re spending on interest when they use a credit card. They go after what they want and the financing costs are kind of collateral damage.”

Prospective buyers visit an open house for sale in Alexandria, Virginia. Real estate agents in several parts of the United States are beginning to see signs of life among people looking for homes to buy.  (Credit: Jonathan Ernst, REUTERS)
Prospective buyers visit an open house for sale in Alexandria, Virginia. Real estate agents in several parts of the United States are beginning to see signs of life among people looking for homes to buy. (Credit: Jonathan Ernst, REUTERS)

Still, most would-be buyers in today’s market are more conservative before rushing to make an offer on a home.

For many, declining affordability remains an issue. At today’s rate, purchasing a home at the median home price translates into a $2,050 monthly payment, a 61% jump from a year ago – Realtor.com data showed.

“These prices are exorbitant for most borrowers, but keep in mind that there may be lower-cost opportunities off the coasts,” Gumbinger said. “Now, whether those lower-cost opportunities are in places you want to live or would like to move – that’s a different discussion. But it can be an opportunity for you to participate in the marketplace today.”

Realtor Steve Bremis talks on the phone during an open house at a condominium unit in Somerville, Massachusetts. (Credit: Brian Snyder, REUTERS)
Realtor Steve Bremis talks on the phone during an open house at a condominium unit in Somerville, Massachusetts. (Credit: Brian Snyder, REUTERS)

Home sellers skittish as buyer competition wanes

Home sellers are realizing they’ve lost a bit of their edge as buyers are no longer rushing to make a deal.

Existing-home sales fell for the sixth consecutive month in July, according to the National Association of Realtors, to a seasonally adjusted rate of 4.81 million. Sales were down 5.9% from June and were 20.2% lower than a year earlier.

The number of unsold existing homes by the end of July rose to 1.31 million, equivalent to 3.3 months of supply at the current sales pace. At least 6 months are needed for a balanced market.

While some sellers pull their listings off market, others are being more realistic and meeting buyers half way.

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A "For Sale by Owner" sign is posted in front of property in Monterey Park, California on (Credit: Frederic J. Brown, Getty Images)

According to Realtor.com, the number of sellers that reduced prices of their properties jumped from 9.4% last July to 19.1% this year – close to typical 2017 and 2019 levels.

“Sellers were very optimistic a few months ago, but they had a reality check this summer. They have been more accommodating and allowing concessions to close a deal,” Adriana Perezchica, president of Via Real Estate Group in Washington, told Yahoo Money. “Think of it this way, they are not reducing the price – they are adjusting it to the price the market is at right now. A few months ago, they were pricing ahead of time, now it’s the opposite.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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