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Rates for home loans dropped significantly this week as financial markets reacted to worries about a slowing economy.
The 30-year, fixed-rate mortgage averaged 4.99% for the week ending August 4, down from 5.30% in the previous week, according to Freddie Mac. It was the first time since April 7 that the rate for the most popular mortgage product fell below 5%. Last year at this time, the rate was 2.77%.
The average 15-year, fixed-rate mortgage was 4.26%, down from 4.58% last week. A year ago, it was averaging 2.10%.
The average 5/1 adjustable-rate mortgage (ARM) was 4.25%, versus 4.29% last week and 2.40% a year ago. ARMs have become more popular this year as their rates remain lower than those on fixed-rate mortgages. In the most recent week, they accounted for 8.4% of all mortgage applications, according to the Mortgage Bankers Association (MBA).
Those rates don’t include fees and other costs associated with obtaining home loans.
Related: Compare Current Mortgage Rates
What’s Ahead for Mortgage Rates
Mortgage rates tumbled just one week after the Federal Reserve raised its benchmark rate 75 basis points for the second time this year. That’s because comments from Fed Chairman Jerome Powell were interpreted as being more dovish than expected, meaning the central bank is likely to ease back on future rate hikes, said Zillow Capital Markets Vice President Paul Thomas, in a statement Wednesday.
“The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment,” said Sam Khater, Freddie’s chief economist, in a statement.
MBA data suggests consumers are watching the ups and downs carefully, and taking any opportunity to apply for a mortgage when rates are favorable. Mortgage purchase applications were up in the most recent week, but have been down sharply for most of 2022 as rates have surged.
Is Now a Good Time to Buy a Home?
As rates and prices remain high and inventory relatively lean, Jennifer Wauhob, a real estate agent in Katy, Texas, says what she’s seeing is “still definitely a seller’s market.” However, Wauhob says there’s slightly less buying frenzy and a few more homes to purchase, which is good for buyers.
“We’ve been a hyperspeed market for the past two years and we’re starting to move back to normal,” she says. “If you’ve been out of the market, now might be a good time to get back in.”
Even so, Wauhob sees higher home prices to continue squeezing many would-be buyers.
“We’re going to start to see a lot of innovations around financing,” Wauhob says, adding that she’s already heard talk about a 40-year mortgage.
Some lenders offer 40- or even 50-year mortgages, though these are not popular products. That’s partly because it will take much longer to pay off the house and the borrower will pay more in interest over the life of the loan.