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Mortgage rates taking a step back as spring approaches

February 23, 2019

Though mortgage rates spent most of last year on the rise, they have reversed course somewhat in early 2019. That's good news for both homeowners and would-be buyers - and perhaps the housing market as a whole if it encourages more current owners to sell. As experts still largely believe rates will finish the year higher than they started, even a brief reprieve can go a long way.

In the week ending Feb. 21, the average 30-year fixed-rate mortgage - most often used to facilitate a home purchase - came to 4.35 percent, down from 4.37 percent one week earlier, according to the latest Primary Mortgage Market Survey from the government-sponsored home loan-backing giant Freddie Mac. At the same time, rates fell on an annual basis as well, dropping slightly from 4.4 percent in the same seven-day period in 2018.

"Falling rates provide a lot of hope for those thinking of getting into the market."

This marked the third straight week in which 30-year FRMs saw their average rates drop, and provides a lot of hope for people who are now thinking of getting into the market once spring rolls around.

"Mortgage rates fell for the third consecutive week, continuing the general downward trend that began late last year," said Sam Khater, Freddie Mac's chief economist. "Wages are growing on par with home prices for the first time in years, and with more inventory available, spring home sales should help the market begin to recover from the malaise of the last few months."

The other side of a sale
However, lower rates are also generally good news for homeowners. Whether they want to stay in their current homes and refinance their existing mortgages, or put their properties up for sale, a lower rate is a benefit. The latter is largely true because anecdotal evidence suggests that 2018's slow but steady rate increases were helping keep the inventory depressed; many current owners would have had to re-enter the market as buyers as well, and potentially face the kind of competition other buyers now deal with, as well as give up some of the all-time best mortgage deals in the history of the housing industry.

For those looking to stay put, more good news came in the form of another rate drop for 15-year FRMs, which are most often used in refinances, Freddie added. These home loan products saw average rates slide to 3.78 percent from the 3.81 percent seen a week earlier, and 3.85 percent on an annual basis.

Short-term impact
With rates falling, it's no surprise that more people were looking to get into the market; mortgage application activity rose on a weekly and annual basis, according to the Weekly Mortgage Applications Survey from the Mortgage Bankers Association. In the week ending Feb. 15, the number of home loan requests ticked up 3.6 percent from the previous week.

On a more granular level, this came through a 6 percent seasonally adjusted increase in refinance activity, as well as a 2 percent jump for purchase requests, the report said. On an unadjusted basis, would-be buyers applied for mortgages at a 3 percent higher rate than they did in the same week last year.

Joel Kan, the MBA's associate vice president of industry surveys and forecasts, noted that the uptick in purchase applications is encouraging for the spring market many expected to be a mixed bag due to inventory tightness, as rates now hover near lows not seen in 10 months.

"Rates now hover near lows not seen in 10 months."

A shifting market
Through the end of January, nearly two-thirds of all closed mortgage loans were intended for purchases, rather than refinances, according to the latest monthly data from Ellie Mae. That may not come as a particular surprise because much of the month happened before rates started to drop, but it's reflective of how much things have changed in the last year. In January 2018, purchases made up just 55 percent of closed home loans at Ellie, but as recently as December 2018, 71 percent of closed mortgages were for purchases, matching the high observed at multiple points last year.

Over that same annual period, the average rate on a 30-year FRM closed by the company had risen sharply, to an average of 5.01 percent for January 2019, the report said. Just a year earlier, it was 4.33 percent. It's worth noting, though, that 5.01 percent was the lowest level seen since October 2018, as both November (5.15 percent) and December (5.17 percent) were notably higher, showing just how much relief has come for shoppers in a short period.

In all, nearly half of all applicants who saw their purchase mortgages close in January had credit scores of at least 750, the report said. Only about 29 percent of approved buyers had scores below 700.

Where they get them
However, the channels through which applicants are seeking out their mortgages aren't changing much, according to National Mortgage News. About two-thirds of all mortgages were backed through government-sponsored entities like Fannie Mae and Freddie Mac.

Meanwhile, a little less than 1 in 5 were via the Federal Housing Administration, and another 1 in 9 came through the Department of Veterans Affairs, the report said. The latter two loan-backing organizations tend to have much more lax lending requirements for borrowers, potentially unlocking homeownership possibilities that wouldn't have been possible otherwise.

Of course, because buying a home is usually the single largest financial decision a person makes in their lifetime, there are many things to consider, whether it's recent rate fluctuations or the fact that home prices are expected to keep rising at levels well above historical norms for the remainder of the year - and potentially beyond. To that end, anyone who's thinking about getting into the mortgage market - either to buy or refinance - will likely have to do some homework, put in the effort to improve their credit scores, and work with financial or real estate professionals to truly understand whether they're ready to apply for a mortgage successfully.




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