Source: Los Angeles Times —
In October, mortgage interest rates topped 7% for the first time in two decades, the latest milestone reached this year amid a surge in borrowing costs.
But potential home buyers may have noticed something different recently: Rates are falling.
On Thursday, mortgage giant Freddie Mac reported that the average on a 30-year fixed home loan dropped for the sixth straight week, hitting 6.27% for the week that ended Wednesday.
To buyers who last year enjoyed rates of 3% and below, the change might seem minor. But the drops can equal hundreds of dollars less spent on monthly payments and some experts say there’s growing signs rates may not rise much from here and could drop further.
“There’s a good chance we have seen the top” in mortgage rates, said Keith Gumbinger, vice president of research firm HSH.com.
Rates have fallen from 7% because there are signs inflation may have peaked after two better-than-expected reports on consumer prices, analysts said.
Since mortgages are bundled together and sold on the secondary market, investors in those mortgages want a higher return — a higher interest rate — when inflation worsens and increasingly erodes the value of their investments.
An expectation that the Federal Reserve’s actions to tame inflation will cause a recession has also helped bring down mortgage rates, due to a complicated interplay of how the Federal Reserve and investors react to economic downturns.
For now, the current average mortgage rate of 6.27% is more than double the 3.05% rate of a year earlier, but down from a peak of 7.08% reached in October and November.
Those changes mean someone getting the average rate and putting 20% down on an $800,000 house would now pay $1,576 more a month than they would have a year ago, but $343 less than when rates peaked this fall.
With the somewhat improved lending picture, coupled with home prices that have come down a few percentages points in recent months, some home buyers have returned to the market.