by Christy Bieber | Published on Aug. 1, 2021
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Could there be some good news on the horizon for home buyers?
Thinking of buying a home? It can pay to keep tabs on trends in the mortgage industry and the housing market. That's because both your loan rate and the cost of homes can impact whether you're able to find a property to purchase and how much it will cost you to buy it.
Secure access to The Ascent's free guide that reveals how to get the lowest mortgage rate for your new home purchase or when refinancing. Rates are still at multi-decade lows so take action today to avoid missing out.
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Although mortgage rates are above the record lows they reached during the heart of the pandemic, they have been trending down in recent weeks, and economists believe this trend may continue or even accelerate in the coming months as a result of new COVID-19 variants.
According to Sam Khater, Freddie Mac's Chief Economist, "Concerns about the Delta variant, and the overall trajectory of the pandemic, are undoubtedly affecting economic growth." He went on to say, "While the economy continues to mend, Treasury yields have decreased, and mortgage rates have followed suit."
Home buyers can benefit from a decline in mortgage rates, as lower interest costs make home purchases more affordable. However, Khafer also noted that "many home buyers are unable to take advantage of low rates due to low inventory and high prices.”
Home prices have been surging for months, and that trend has continued throughout the early summer.
In fact, the S&P CoreLogic Case-Shiller 20-city home price index found that prices rose 17% year-over-year in May of 2021. That's the largest annual increase in prices since August of 2004. It also comes on top of a 15% year-over-year increase that occurred during the prior months.
A low supply of houses combined with raging demand due to low mortgage rates and changing lifestyles due to the pandemic all contributed to the sharp run-up in prices. However, the reality is that prices can only go so high before people are pushed out of the market.
There are some potential signs this is starting to occur, and the trend could accelerate into August. In fact, sales of new homes declined in June for the third straight month. And sales of existing homes had been steadily declining for four months until a small bump in June, which may not be representative of the broader ongoing trend towards reduced sales.
The inventory of existing home sales has also been increasing for several months, and there's been a steady decline in the number of building permits issued -- both of which suggest softening demand for new and existing homes.
An S&P index tracking the stocks of 15 major home builders had also been surging, rising in value by close to 250% between March of 2020 and the start of May. However, this index has started to slump in more recent months, with some companies on the index seeing double-digit declines in their share price. This is also a strong indicator that the housing boom could be starting to fade.
A decline in home prices would be welcome news for buyers, many of whom have become involved in bidding wars in an increasingly competitive market. That's especially true if mortgage rates also fall, as more borrowers could have the opportunity to secure home loans at affordable rates if they have access to homes within their price range.
Unfortunately, although trends may suggest that both mortgage rates and home prices may be on the downswing, no one can predict exactly when or how quickly rates and prices will decline -- or when they'll hit rock bottom.
Prospective homeowners should make decisions about when to purchase a property based on their personal financial readiness as well as taking local and national trends into account.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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