Mortgage rates are still close to record lows, but that makes owning a home no longer cheaper for home buyers.
The 30-year fixed-rate mortgage averaged 2.91% for the week ending August 27, falling eight basis points the week before, Freddie Mac FMCC,
reported Thursday.
The 15-year fixed-rate mortgage also fell eight basis points to an average of 2.46%. The 5-year mortgage-indexed hybrid mortgage with adjustable rate remained at an average of 2.91%.
Low mortgage rates have provided incentives to prospective buyers, prompting home sellers to be hit last seen before the Great Recession. But today’s homebuyers do not necessarily score a deal compared to last year’s cohort of buyers.
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This time last year, the 30-year fixed-rate mortgage averaged 3.58%. But someone who buys the typical note today will pay $ 14 higher monthly mortgage payments than someone who bought a property last summer, according to data from Realtor.com.
“Lower mortgage rates can not fully offset higher costs,” said Danielle Hale, chief economist at Realtor.com.
(Realtor.com is operated by News Corp NWSA,
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
As rates fall, affordability improves over a period of time. But as history has shown, low rates eventually attract more people into the housing market. This creates competition for homes, which drives up prices.
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Currently, median prices are 10.3% higher than a year ago, according to Realtor.com. Meanwhile, the low supply of homes for sale has meant that properties are coming off the market in record time. This increases the likelihood that a given buyer will get a bidding war, which may increase how much they have to spend to get the keys to their dream home.
Eventually, current homebuyers may discover that low mortgage rates are a double-edged sword.
One piece of good news for buyers, however: While rates remain incredibly low, refinancing is becoming less attractive to existing homeowners, Hale said. “This can help buyers paradoxically because they do not have to compete with so many refinancing applicants for attention to lenders,” she said.
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