Interest rates have found a new low. This week, the 30-year fixed mortgage rate hit 2.86%, well below the 3% threshold that just a few months ago most people were saying would be the lowest they could reach. As we closed out August, interest rates had already come down to 2.91%, slightly above the previous record low of 2.88%, according to the weekly report from Freddie Mac. But now we have nudged even lower and momentum suggests they will see at least one more new lowest rate before we too much further into fall.
The decrease in rates has been met with an increase in applications, even though the Labor Day holiday usually puts a pause on housing activity. For the week ending Friday, September 4, both purchase and refinance applications increased 3%, but refinances continued to show their dominance by making up 63.1% of the total number of applications, according to the Mortgage Bankers Association.
(Even though Labor Day was Monday, September 7, after the data collection for this report closed, it is still considered an influencing factor since the week leading up to the holiday typically sees a slowdown in mortgage activity.)
Sam Khater, Freddie Mac’s Chief Economist, commented that demand activity has seen double digit increases for the past four months, but points out, “Heading into the fall it will be difficult to sustain the growth momentum in purchases because the lack of supply is already exhibiting a constraint on sales activity.”
The other record that was broken last week is the amount of money people are borrowing to buy a home. The MBA survey shows purchasers borrowed an average of $368,600 for their loan—which is the highest the MBA has recorded in the survey’s 30-year history. (The weekly report covers over 75% of all retail residential mortgage applications in the U.S.) As rates have dropped, purchasing power has increased, with Redfin reporting that buyers who have a $2,500 per month budget for housing can now afford a home that is at least $30,000 more expensive compared to a year ago.
The rates might see some small fluctuations but they aren’t going to see any large increases for the next few months. The biggest hurdle continues to be lack of supply in popular markets. But if people are able to borrow more money, that could entice sellers to list their homes this year while they have a greater chance of selling at a higher asking price.