As of mid-July, 2020, average mortgage rates on conventional 30-year loans dropped to 2.98%. This is the lowest rate recorded since Freddie Mac began publishing such data in 1971. Although much of the nation is affected financially by the ongoing pandemic, for those still employed, the drop in rates has made home ownership even more affordable.
The majority of loan applications right now are home owners looking to refinance and free up cash for other needs. But record-low rates are also stimulating first-time home buyers to take advantage of the opportunity to buy.
Low Mortgage Rates in Real Numbers
So how much is the average home buyer saving? If one were to buy a home at the national median price of $285,000, the decline in mortgage rates could allow for around $100 a month in savings, which translates to roughly $50,000 over the life of a 30-year loan. The savings is even more substantial in higher-cost-of-living regions.
A Stimulus to Move, with a Twist
Lower rates are acting as a catalyst for many on-the-fence home buyers to make a move. One big problem for them, however, is that listing inventory is at an all-time low in much of the country. That means bidding war situations over a short supply of homes and the need to make quick decisions when something new hits the market. If new home buyers continue to enter the market, the demand is likely to spur new construction, which could also lift employment in this industry.
Good News Still Comes with Caution
While the good news on lower interest rates and buyer activity is promising, it’s important to recognize the nation’s economic worries. Housing is not immune to the turmoil. CoreLogic data shows that a record high level of mortgages—3.4%— went into delinquency in April, 2020. That’s higher than during the 2008 housing crisis. This has caused some lenders to tighten up standards for new home loans, which could mean a reduction in buyers who are able to qualify.
Real Estate Term of the Week
Mortgage Underwriting: The process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower under certain parameters is acceptable. Most of the risks and terms that underwriters consider fall under the three C’s of underwriting: credit, capacity and collateral.