Mortgage rates edge higher after weeks of declines
Mortgage rates ticked higher this week, after a month of straight declines that spurred some home-buying activity.
The rate on the 30-year fixed mortgage inched up to 6.12% from 6.09% the week prior, according to Freddie Mac. Rates have been floating lower since mid-November, falling as more than three-quarters of a point and allowing around 3 million more buyers to qualify for a median-priced home.
Lower rates have persuaded some homebuyers to return to the market ahead of the spring season as sellers continue to offer incentives and reduced listing prices. Still, affordability challenges continue to sideline first-time buyers as overall home prices remain high.
“Incentives hold a lot of value for prospective buyers and that may be getting them to step in,” Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, told Yahoo Finance. “We’re seeing buyers that want to get closing costs credits or interest rate buydowns, but whether you get it depends on the market you’re in.”
Homebuyer demand picks up, but just barely
The volume of mortgage applications to purchase a home increased 3% last week, the Mortgage Bankers Association’s (MBA) survey for the week ending Feb. 3 found, after posting a 10% drop in demand the week prior. Overall, purchase activity remains 37% lower than the same week one year ago.
“Purchase activity that was put on hold last year due to the quick run-up in rates is gradually coming back as rates ease…” Joel Kan, MBA’s vice president and deputy chief economist said in a statement,
Still, “purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry level housing remains undersupplied and buyers struggle with affordability in many markets,” he added.
The reluctance of first-time buyers to rejoin the market isn’t surprising.
The median listing price in January was $400,000, Realtor.com data found, roughly 8.1% higher than a year ago — but still lower than June’s peak of $449,000.
With rates double where they were a year ago, homebuyers today face a monthly mortgage payment that is roughly $700 higher per month for a typical loan, the National Association of Home Builders said.
And though inventory levels have improved slightly, finding a home at an accessible price range isn’t exactly a walk in the park. According to Robert Dietz, chief economist of the NAHB, only 42% of new and existing homes for sale in January were considered affordable for the typical household, a post-Great Recession low.
“The only way to bring down housing inflation is to build more affordable housing,” Dietz said in a statement.
Take advantage of incentives while you can
As competition remains tepid, home sellers continue to dangle incentives to attract the smaller buyer pool that remains.
The share of homes with a price reduction increased to 15.3% in January from 6% a year ago, Realtor.com found. Home builders are also offering up incentives, the NAHB said, including mortgage rate buy-downs, cash for closing costs, or additional price cuts.
According to Jason Sharon, owner of Home Loans Inc., rates are only one part of the equation – a home price can just as easily price a buyer out of the market. That’s why taking advantage of any seller concessions while you still can could be a smart move.
“Rates are better, but not significantly,” Sharon told Yahoo Finance. “In good housing market areas, we will still see home values improve up to 10% year over year. That price increase will by far raise the mortgage payment more than a lowering rate will decrease it.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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