Mortgage rates are dropping again, but it’s still hard to buy a home

Rising prices It had already pushed many potential buyers to the sidelines. But with prices still rising this year, more home shoppers are putting their search on hold.

“The continued rise in home prices and the recent increase in interest rates slowed buyer activity in April as evidenced by the month-on-month decline in Existing Home SalesAnd the New home salesand pending home sales, as some buyers opted to exit the market altogether. said Hannah Jones, economic data analyst at Realtor.com. “However, home buyers continued to face a record rise in home prices in May.”

At the end of May 2021, the buyer took a 20% discount on a $375,500 home — just below the median price for an existing home — and financed the rest with a 30-year mortgage at an average flat rate. The interest rate was 2.99%, and the monthly mortgage payment of principal and interest was $1,265, according to figures from Freddie Mac.

Today, a homeowner who buys a home at the same price at an average rate of 5.09% will pay $1,629 per month in principal and interest. That’s an extra $364 each month and an extra $131,147 in cumulative interest payments over the life of the loan, according to numbers from Freddie Mac.

But, Jones said, there may be good news ahead as more homes enter the market.

“While inventory is still low by historical standards, it is beginning to tilt in a more buyer-friendly direction,” she said. “This is likely to lead to slower price growth in the not too distant future as sellers compete for buyers, ultimately creating a more balanced market.”

Do mortgage rates continue to rise?

However, many buyers cannot afford to buy a home that suits their needs with high mortgage rates.

“Those who are currently home shopping will tell you that we are not there yet, as interest rates remain high and house prices create challenges in finding their perfect home,” Jones said.

Mortgage rates tend to track 10-year US Treasuries. However, rates remained mostly flat last week even as 10-year Treasury yields increased.

But rates are also indirectly affected by the Fed’s actions.

The Fed has been trying to tame inflation by raising interest rates over the past two months. The central bank indicated that there are more price increases in the future.

Earlier this week, President Joe Biden met with Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen and expressed support for the Fed’s actions to curb inflation and pledged to refrain from influencing interest rate decisions.