Experts remind that although the Federal Reserve has recently cut interest rates, it does not mean that mortgage interest rates will drop significantly immediately, and home buyers still need to be cautious about the current market situation. (Image source: Pixabay) Looking at Chinese websites, it is prohibited to create mirror websites. Return to the genuine Chinese website.
[Watch China, September 24, 2024](Watch China reporter compiled by Gao Yun) Recently, the Federal Reserve announced a significant interest rate cut and hinted that there may be more interest rate cuts in the future. This news has made many home buyers rejoice. However, experts caution that although this is a positive signal, it does not mean that mortgage interest rates will drop significantly immediately, and home buyers still need to be cautious about the current market situation. It is forbidden to create mirror websites on Chinese websites. Return to the genuine Chinese website.
According to the Associated Press, Danielle Hale, chief economist at real estate website Realtor.com, said that most of the easing measures this year have been implemented and interest rates may rise slightly before falling again.
What are the mortgage interest rates like?
Looking back over the past two years, the average 30-year mortgage rate has experienced dramatic fluctuations, climbing from less than 3% in September 2021 to 7.8% in October last year (a 23-year high), and has now fallen back to 6.09%.
Even a small drop in interest rates can translate into significant long-term savings for homebuyers: For example, a buyer in Los Angeles with a 20 percent down payment would save about $312 per month compared to May, based on the median U.S. home price of $416,700 last month.
Is now a good time to buy a house?
Although falling interest rates have increased the ability of homebuyers, interest rates around 6% are still too high for many Americans. The main reason is that home prices have soared 49% in the past five years, far outstripping wage growth. Due to the shortage of housing in many places, home prices remain at near historical highs.
Unless interest rates fall back to the ultra-low levels of three years ago or house prices fall significantly, many people will still have trouble affording homes. Neither of these scenarios is likely to happen anytime soon.
Economists and mortgage industry executives expect mortgage rates to remain near current levels at least through this year. Fannie Mae predicts the 30-year mortgage rate will average 6.2% in the fourth quarter of this year (October to December) and could fall to 5.7% in the same period next year.
Mortgage rates are affected by a variety of factors, including the bond market’s reaction to the Fed’s decisions. Rob Cook, vice president of Discover Home Loans, said that future economic data will determine how quickly interest rates fall. If the economy slows more than expected, the Fed may cut interest rates more aggressively, leading to lower mortgage rates.
Buy a house now, or wait for lower interest rates?
The U.S. second-hand housing market has continued to be sluggish since 2022, with sales falling 2.5% last month. At present, the decline in interest rates has not yet triggered a significant market rebound.
Faced with the current market situation, potential buyers and sellers are in a dilemma: should they enter the market now or wait for possible lower interest rates? Take Nick Young, a lawyer who moved from Phoenix to Evergreen, Colorado this year and chose to rent a house first. He and his wife have a home purchase budget of between $1 million and $1.5 million and are looking for a five-bedroom house suitable for their three children to grow up in. In addition to paying attention to interest rates, they also consider factors such as inflation, overall economic conditions and the presidential election.
Real estate agents from Phoenix to Tampa, Florida, say buyers are waiting for interest rates to fall below 6 percent. Some are even hoping for rates to return to the lows of three years ago.
“What we’re trying to do is bring them back to reality,” said Mike Opyd, a broker with Re/Max Premier in Chicago. “If you really want to buy a house, you should do it now.”
Waiting for rates to potentially fall further next year could leave buyers facing stiffer competition. Meanwhile, would-be sellers may remain on the sidelines.
“With 76% of existing mortgage holders having interest rates below 5%, this could lead to a further increase in the supply-demand imbalance in the near term,” said Leo Pareja, CEO of eXp Realty.
Refinancing boom
The experience of first-time homebuyers Drew and his wife, who recently purchased a two-bedroom, 1.5-bathroom townhouse in Bellingham, Washington, is representative.
Yayi is a salary analyst. When he first contacted her in February this year, he received a mortgage interest rate quote of up to 7%. By the time the deal was finalized, the interest rate had only slightly dropped to around 6.63%.
He hopes to refinance to 5% or 5.25% in the future, but is unsure when that will happen. Yayi said refinancing his $407,000 mortgage to 5.5% would reduce his monthly payments by about $300.
It is generally believed in the industry that when considering refinancing, the difference between the new and old interest rates should reach 0.5 to 0.75 percentage points before it is worthwhile to operate.
Demand for mortgage refinancing is currently on the rise, with applications surging 24% last week, according to the Mortgage Bankers Association.
Faced with record interest rates climbing to around 8% about a year ago, lenders have been rolling out innovative products, using a “rate-matching” strategy that bundles original loans with refinancing incentives to ease buyers’ concerns by offering them a way to escape high interest rates in the future.
“This is getting more and more attention,” said Mike Fratantoni, MBA’s chief economist. “For first-time homebuyers, being locked into 7 percent interest rates forever is really daunting.”
Navy Federal Credit Union launched its popular “Rate Cut Without Refinancing” offer in 2023. Homebuyers can lower their interest rate for a $250 fee while keeping the other terms of their original loan the same.
Darik Tolnay, branch manager at CrossCountry Mortgage in Lakewood, Colorado, has observed that many homebuyers are taking advantage of temporary rate buybacks and no-cost refinancing options.
“Everyone is eager to own their own home,” Torne said. “If someone offers a solution that makes housing more affordable, people will eagerly seek that option, given the current mood.”
Source: Watch China
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