First-Time Buyers Get Mortgage Rate Reprieve for Now

Mortgage rates continue to decline for the month of June, providing first-time buyers with a reprieve from rising rates for home loans at the same time that property values are increasing.

On Thursday, Freddie Mac reported that, for the week ending July 5, the average interest rate on a 30-year fixed-rate mortgage was 4.52% compared with 4.55% in the week earlier. The mortgage rate on a 15-year fixed-rate mortgage was 3.99%, down from 4.04%, while the five-year adjustable-rate mortgage stands at 3.74%, down from 3.87%. In releasing the rates for the week, Freddie Mac chief economist Sam Khater said that there was good news for home buyers: mortgage rates “may have a little more room to decline over the very short term.” Translation: first-time buyers who are sensitive to rising costs to borrow may want to jump in now before rates turn higher. After all, the conventional wisdom is that mortgage rates will be higher by the end of this year.

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First-time buyers are extremely price sensitive and may be shut out of the market if rates increase. After all, they also have to contend with rising property values and price wars that are breaking out in some parts of the country. Lawrence Yun, chief economist at the National Association of Realtors, told the The Seattle Times that interest rates are very important to first-time buyers, which is why they are paying close attention to the moves in the cost for a home loan. He said buyers need to act quickly because mortgage rates are likely to be higher in three to six months.

While mortgage rates have declined for five out of the past six weeks, first-time buyers have more than the cost of borrowing to contend with. Given a shortage of affordable properties on the market, bidding wars are breaking out and driving the property values out of the reach of many. It’s partly the reason mortgage applications have been on the decline in recent weeks.

According to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, applications for new home loans decreased 4.9% week over week on a seasonally adjusted basis for the week ending June 22. On an unadjusted basis, the index dipped 6% compared with the week earlier. Meanwhile, the Refinance Index decreased 4% compared with the week earlier, while the Purchase Index decreased 6% on a seasonally adjusted basis and was down 7% on an unadjusted basis. The Purchase Index was 1% higher than the same week one year ago. Refinance activity increased as mortgage rates declined, with refinances accounting for 37.6% of total applications, up from 36.8% in the previous week. The adjustable-rate mortgage share decreased to 6.5% of total applications.

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