As mortgage rate tumbles, will buyers rush in? Not so fast, they say

Affordability remains at untenable highs for many wannabe homebuyers

By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | August 12, 2024

Article originally posted in Orange County Register on August 8, 2024.

The Freddie Mac 30-year fixed rate fell Aug. 7 to 6.47%, its lowest level since May 2023.

The mortgage rate roll down started with a higher-than-expected unemployment rate at 4.3%, announced Aug. 2 by the Labor Department.

Market volatility helped drive down U.S. mortgage rates.

Sam Khater, chief economist at Freddie Mac, said the turbulence on Wall Street came despite an economy that “remains on solid footing.”

“The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move,” he said.

So, will this spark a stampede of homebuyers writing offers?

Not yet.

Even though mortgage application volume reached its highest level since January, Joel Kan at the Mortgage Bankers Association says the gain, so far, is scant.

“Despite the downward movement in rates, purchase activity only saw small gains, with an increase in conventional purchase applications offset by decreases in government purchase applications,” said Kan the association’s deputy chief economist. “For sale inventory is beginning to increase gradually in some parts of the country, and homeowners might be biding their time to enter the market given the prospects of lower rates.”

Last week, the Freddie 30-year fixed averaged 6.73%. The payment for a maximum conforming loan amount ($766,550) was $4,962. Fast-forward to this week’s survey at 6.47%, the payment is $4,830, $132 less. That was more than one-quarter point drop in a week. Rates are about one-half point lower than they were one year ago. Every little bit helps, I say.

Only 17% of consumers said it’s a good time to buy a home in July, down from 19% in June, according to Fannie Mae’s national housing survey. (This survey was completed ahead of the rate drop.)

“While we’re seeing signs that affordability may be improving in certain parts of the country as supply slowly comes online, household income remains stretched relative to would-be mortgage or rent payments, and our latest survey once again reflects real consumer frustration with the housing market,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“However, 82% told us in July it’s a ‘bad time’ to buy, a share that’s remained consistent since January 2023, and these particular respondents continue to point to elevated prices and mortgage rates as the primary reasons for that belief,” Duncan said. “Meanwhile, there seems to be little expectations among the general population that homebuying conditions will improve in the near future.”

One thing I’ve noticed over the last few months talking with realtors is financing seems to be a non-starter with so many buyers paying cash or bringing in substantial down payments. One agent told me that out of five closed sales this year, four of them were all cash.

Open houses, for the most part, have been highly trafficked by looky-loos, as I’ve witnessed.

On the refinance front, anybody who has a mortgage rate over 7% may want to look into knocking down the rate. Well-qualified borrowers can get rates under 6% right now. Shop around to find your best deal.

Freddie Mac rate news: The 30-year fixed rate averaged 6.47%, 26 basis points lower than last week. The 15-year fixed rate averaged 5.63%, 36 basis points lower than last week.

The Mortgage Bankers Association reported a 6.9% mortgage application increase compared with one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $249 more than this week’s payment of $4,830.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.49%, a 15-year conventional at 5.375%, a 30-year conventional at 5.99%, a 15-year conventional high balance at 5.875% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high-balance conventional at 6.375%, and a jumbo 30-year fixed at 6.625%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.

Eye-catcher loan program of the week: A 30-year fully amortized jumbo, fixed for the first five years at 5.875% with 30% down at 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

If you enjoyed this article and want to receive weekly mortgage news for FREE, sign up for the newsletter HERE.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.