The Federal Reserve (AKA the Fed, among its friends) recently announced another quarter-point rate hike, but mortgage rates continue to fall. Is that good news? Well, maybe, but let’s take a closer look at that. This, along with stabilizing real estate prices, is improving purchase demand, according to Freddie Mac chief economist Sam Khater. Experts like Khater anticipate that more buyers will return to the market as rates become more affordable, but this does not necessarily mean that housing prices will subside anytime soon.
The average 30-year fixed rate has fallen to 6.42%, compared to last week’s average of 6.60%, making it more affordable for Americans to purchase the median-price home by putting 18% down without being cost-burdened. That’s what explains Nadia Evangelou, senior economist for the National Association of Realtors (NAR). The real estate and housing market may rebound even faster than expected if mortgage rates continue to decline this spring, according to Evangelou.
Homebuyers Take Advantage of Falling Mortgage Rates for Real Estate Transactions
The average rate on a 15-year home loan has also fallen from 5.90% to 5.68% last week. However, despite the Fed’s softened stance on additional rate hikes, the federal funds rate will still remain fairly high. It means that a higher interest rate environment is here to stay for the time being, including for home loans, says Hannah Jones, economic research analyst.
Although lower mortgage rates signal increased affordability, the median new home sale price climbed to $438,200 last month. That’s 2.5% higher than the same period last year. As long as the housing market remains undersupplied, buyer competition will put upward pressure on prices, explains Jones.
The Real Estate Properties and Mortgages Demand on a Rise
Demand for mortgages rose 3% from the previous week, according to the Mortgage Bankers Association (MBA). Homeowners have also been more encouraged to refinance with the refinancing index climbing 5% since the week prior. However, mortgage rates haven’t plunged as drastically as Treasury rates due to increased volatility in the mortgage-backed securities market, says Joel Kan, vice president and deputy chief economist at the MBA.
Despite the economy starting to move in the right direction, high home prices are still preventing many prospective buyers from signing on the dotted line. One alternative to buying or selling a home is investing in prime commercial real estate, which has outperformed the S&P 500 over a 25-year period. With new online platforms, investors can invest in professionally-vetted real estate without having to pay for a property in full.