Real Estate News

Consumers still feeling out mortgage affordability?

Published: 24 Oct 2017

Over the past few years, experts have continually pointed out that consumers might not realize just how good they have it in terms of mortgage affordability. Even as rates stayed above recent lows for most of 2017, they remained quite affordable with all-time and pre-recession norms, providing more affordability despite steady increases in home prices. However, it's also believed affordability may not last all that much longer.

For the first time in more than a month, mortgage rates actually took a step backward in the week ending Oct. 19, according to the latest Primary Mortgage Market Survey from Freddie Mac. The average 30-year fixed-rate mortgage stood at 3.88 percent, down from the previous week's 3.91 percent, but still well above the level seen a year prior, when rates came in at just 3.52 percent. There were similar trends observed for 15-year FRMs, which tend to be used more for refinances than purchases.

Sean Becketti, the chief economist at Freddie Mac, noted this change came because yields on 10-year Treasury bonds slid somewhat over the same week.

Mortgage rates took a small step back recently.Mortgage rates took a small step back recently.

Growing disquiet among investors?
One of the potential reasons for the decline in mortgage rates, which tend to follow 10-year Treasury yields at a more muted level, is that investors are unsure what will happen with respect to the head of the Federal Reserve Board, according to MarketWatch. While it's possible that current chair Janet Yellen will be replaced early next year when her term comes to an end - and some experts believe it quite likely - there is no consensus on who will replace her and what policies that individual might enact, which could make investors a bit nervous.

Regardless of what happens, experts note that consumers should keep in mind analysts thought at the beginning of the year that rates would already be much higher than they are now, the report said. Indeed, most insiders predicted mortgage rates would average about 4.5 percent for the 2017 calendar year, but the actual number has been closer to 4 percent and declined more sharply in the second half.

Consumers taking advantage?
With rates still below 4 percent, it comes as no surprise to industry insiders that more consumers are moving to take advantage of today's lingering affordability, even as home prices continue to rise. In the week ending Oct. 13, mortgage applications rose 3.6 percent on an adjusted basis from the previous seven-day period, according to the latest data from the Mortgage Bankers Association. That change came as both purchases (4 percent) and refinances (3 percent) both experienced increases. Moreover, purchases were up 9 percent on a year-over-year basis.

With affordability still high in comparison with historical norms, the sooner consumers can move to either buy a home or refinance an existing mortgage, the more likely they will be to lock in a good deal. Both prices and rates are expected to continue rising before the end of the year, and into 2018, so acting in the near future could help them save thousands over the lives of their loans.