Mortgage rates have risen appreciably in the past month and a half, cutting into the high-level affordability many Americans have moved to seize for more than a year. However, despite the sharp increase – and flying in the face of recent trends in mortgage activity whenever rates have climbed even slightly – it seems that today's less affordable conditions have done little to deter would-be buyers in particular.
Specifically, mortgage rates on the average 30-year fixed-rate home loan jumped to 4.3 percent in the week ending Dec. 22, up considerably from the 4.16 percent seen just seven days earlier, according to the latest Primary Mortgage Market Survey from the government-sponsored entity Freddie Mac. This loan type – which is most often used in purchases – stood at 3.96 percent in the same week last year, and is up from the mid-3 percent range where it stood just six weeks ago. At this point, mortgage rates for buyers are higher than they have been in more than two and a half years.
Other rates moving in kind
Meanwhile, the average 15-year fixed-rate mortgage – most often used in refinances – averaged 3.52 percent during the same week, rising from 3.37 percent in the week ending Dec. 15, the report said. That's also up sharply on an annual basis, rising from 3.22 percent.
"A week after the only rate hike of 2016 [by the Federal Open Markets Committee], the mortgage industry digested the Fed's decision and this week's survey reflects that response," said Sean Becketti, chief economist at Freddie Mac. Following [Fed chair Janet] Yellen's speech last Wednesday, the 10-year Treasury yield rose approximately 10 basis points. The 30-year mortgage rate rose 14 basis points to 4.30 percent, reaching highs we have not seen since April 2014."
Buyers undeterred by changing environment
However, it seems that buyers recognize a salient fact others have missed in recent years: Even rates in the low-4 percent range are affordable in comparison with historical and pre-recession norms. As such, they're keeping up their interest in getting into the market despite shifting affordability, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association. In all, the number of home loan applications filed nationwide in the week ending Dec. 16 rose 2.5 percent on a seasonally adjusted basis. That trend was reflected by increases of 3 percent for both the refinance and purchase indices.
Incidentally, these changes led the share of the market taken up by refinances to rise to 57.9 percent from the previous week's 57.2 percent, the report said. But what's interesting is that the average loan size on purchase applications is now at $312,000, the second-highest level ever observed.
These signs of rising prices and rates not scaring off buyers should serve as a lesson to those who are still on the fence about getting into the market: Those increases are only likely to continue, so the most affordable time to buy is likely right now.
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