Since the Federal Reserve cut interest rates in July, consumer borrowing costs have slowly declined and that has helped to buoy mortgage refinancing which has, in turn, helped to boost household spending even at a time when economic uncertainty is broadening.
Specifically, mortgage rates in the US are at their lowest in nearly three years. In the past couple weeks, average 30-year, fixed-rate mortgage rates—for the typical borrower with excellent credit and 20 percent down—fell to only 3.56 percent, down from 3.75 percent. This was during the week of the Fed’s policy meeting at the end of July.
Trends persist that the cost of home loans typical follow 10-year Treasury yields. Unfortunately for the housing industry, these notes plunged in August as global trade tensions continue to darken economic outlook. What is fortunate, perhaps, is that this yield has been able to rebound, at least in part, over the last month as a result of the US-China trade war starting to cool a bit.
Now, it is important to note that the 30-year mortgage rate was 4.94 percent, in November. This is the highest rate in more than 7 years. Analysts advise that the difference in rates—in just the past few months, as it seems—could save homeowners about $182 per month from the typical home sold in the United States (at a median price of $280,000).
As could be expected, homeowners and prospective home buyers are taking advantage of this attractive trend and capitalizing on the recent drop in interest rates. In fact, mortgage refinance applications—which are most often used to assert lower rates or improve financing terms—were up 169 percent, on the year, for the week ending September 6. The Mortgage Bankers Association say that new mortgage applications were up 9 percent.
That in mind, the MBA predicts, overall, mortgages originating in the third quarter could rise 32 percent from last year, to $605 billion.