U.S. mortgage rates fell sharply for a second week in a row as monetary policies aimed to slow the economy and dominate the housing market. The rate on the popular 30-year fixed mortgage hasn’t fallen this much since December 2008, a new report shows. Although interest rates have been rising for most of this year, the recent declines provide a glimmer of hope for buyers. Buying a home is now about 5% more affordable than it was a week ago, says Nadia Evangelou, senior economist at the National Association of Realtors. This translates to a savings of about $100 on a typical monthly mortgage payment.

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30 year fixed rate mortgages

The average interest rate on a 30-year fixed mortgage fell to 5.30 percent this week, from 5.70 percent a week ago, mortgage finance giant Freddie Mac said Thursday. A year ago, the 30-year rate averaged 2.90%. “Over the past two weeks, the 30-year fixed-rate mortgage has fallen half a percent as concerns about a possible recession continue to grow,” says Sam Khater, chief economist at Freddie Mac. The Federal Reserve, which is trying to reduce inflation by cooling the economy, raised its benchmark interest rate by three-quarters of a percentage point in June. The central bank is likely to make another hike of the same size when it meets again later this month, according to minutes from last month’s Fed meeting.

15 year fixed rate mortgages

The 15-year fixed-rate mortgage averaged 4.45 percent this week, up from 4.83 percent last week, Freddie Mac says. Last year at this time, the 15-year rate averaged 2.20%. Higher borrowing costs dampen demand for homes and the market recalibrates. “Home price growth is beginning to moderate and price reductions are becoming more common as sellers are finally challenged and begin to reevaluate their expectations,” said Matthew Speakman, senior economist at Zillow, in a recent interview. The story continues Indeed, homeowners are being forced to change their mindset. While many new listings still sell within days, multiple-offer situations are fewer and farther between, says Corey Burr, a Washington, D.C., real estate agent. A seller should be prepared to make adjustments if a property does not go under contract within two weeks of being listed. “In these cases, we’re seeing more broker commission incentives, more sellers offering to pay buyers’ closing costs and outright reductions in list prices,” says Burr, senior vice president of TTR Sotheby’s International Realty.

5 year adjustable rate mortgages

The five-year adjustable-rate mortgage (ARM) averaged 4.19% this week, up from 4.50% last week. The 5-year ARM averaged 2.52% a year ago. ARMs, which vary based on the initial interest rate, start out with a lower interest rate. However, they can increase when the initial fixed rate period ends. Despite recent interest rate cuts, fewer Americans are taking out new mortgages. Applications fell 5.4% according to the latest weekly survey by the Mortgage Brokers Association (MBA). “Rates are still significantly higher than a year ago, which is why applications for home purchases and refinances remain subdued,” says Joel Kan, MBA’s associate vice president for economic and industry forecasting.

When will house prices start falling?

The median home price hit a record $450,000 in June, up 17 percent from last year, according to Realtor.com. This leaves little room for buyers on budgets. Although prices are expected to soften, they have not yet made significant moves, according to researchers at Florida Atlantic University (FAU) and Florida International University. Median prices are still rising in nearly all of the 100 largest housing markets, they found. However, data suggests the market may be nearing its peak. “There are many reports that mortgage applications and home showings are falling as interest rates rise,” Ken Johnson, an economist in FAU’s College of Business, says in a new report. “We expect prices to eventually level out as well, particularly if a recession occurs and lending rates remain high.”

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