Not everyone cares about what's happening in the stock markets. However, if you're trying to buy or sell a home, the market turmoil that erupted last week was actually good news.
The reason: Mortgage rates have been falling, giving potential buyers a better chance of making a home purchase work out. And don't forget: Federal Reserve Chairman Jerome Powell strongly hinted last week that interest rate cuts are on the way, perhaps as early as September.
Daily quotes for 30-year mortgages were 6.52% on Tuesday, according to Daily Mortgage Newswhich tracks money markets and mortgage rates.
This was slightly higher than the 6.34% reached on Monday, when stocks plunged and many investors sought relative safety in bonds. The 6.34% was also the lowest level since April 7, 2023.
Related: Fed gives biggest clue yet on next move in interest rates
In fact, the 30-year rate has fallen nearly 13.3% from a recent high of 7.52% on April 24, 2024. So, if you're buying a home with a $250,000 mortgage, the rate drop means your monthly principal and interest payment goes from $1,751.46 in April to $1,583.46.
This equates to a monthly savings of $168, which annualizes to $2,016.
(Payment does not include taxes, property insurance or mortgage insurance if down payment is less than 20% of the purchase price.)
This leaves the buyer with a choice: pay less on the mortgage or buy a bigger home.
For the seller, lower rates can attract more buyers and possibly consolidate the price of a family's home.
The weekly surveys of Freddie Mac, the popular name for the Federal Home Mortgage Corporation. (Merchandise Control Center) confirm the trend towards lower rates.
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Lower mortgage rates clash with market reality
Lower rates are good for housing, but they come at a time when the U.S. housing market remains under pressure. Inventories of existing homes for sale are very low across much of the country. Sales have been weak, while overall prices continue to rise.
Existing home sales reached a seasonally adjusted annual rate of 3.89 million units in June, down 20% from June 2023. Sales reached a rate of 6.6 million units in December 2021. New home sales in June reached an annualized rate of 617,000 units, down 7.4% from the prior year.
The market tightness is partly due to Powell and the Federal Reserve, which raised interest rates 11 times between March 2022 and July 2023 to combat inflation.
Mortgage rates rose from 3% at the end of 2021 to nearly 8% in October 2023.
Many homeowners don't sell because they have mortgages with rates below 5% and would have to pay more if they moved to a new home.
The other problem is that many buyers believe they can't make a purchase work even with rates at 6.4%. Real estate agents and brokers believe the 30-year rate needs to drop to 6% or lower.
At a 6% interest rate, the monthly payment on a $250,000 loan is reduced to $1,499.
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Will mortgage rates go down?
What is not known is whether interest rates and mortgage rates will remain near current levels. The yield on 10-year Treasury bonds, which heavily influences U.S. mortgage rates, fell slightly to 3.793% on Friday and plunged to 3.669% on Monday before closing at 3.798%. The yield rose slightly to around 3.9% on Tuesday.
The 10-year yield could continue at a lower level. The current yield chart shows a ceiling of approximately 4.2%.
One way a buyer can protect themselves is to talk to lenders regularly about current rates. Equally important: If you're closing a sales deal, ask if a lender will commit to holding a specific rate until the sale closes (and get the commitment in writing).
Shares of homebuilders were hit hard by Monday's market decline. However, shares rose on Tuesday, with DR Horton (DHI) It rose 1.7% to $176.76 in midday trading. Lennar (LEN) which had fallen 2.3% on Monday, rose 2.3% to $174.30.
The iShares US Homebuilding ETF (ITB) which had fallen 2.82% on Monday, rebounded 1.8% to $114.62. The stock had hit a 52-week high of $123.89 on July 31.
Related: Veteran fund manager sees world of trouble ahead for stocks
