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By: Thomas Podrasky | tap5517@psu.edu
March 28, 2019
The mortgage rate approached 4% on Thursday for the first time since January of 2018, providing the housing market with a welcomed boost.
The 30 year fixed mortgage rate, which topped out at nearly 5% last November, has been steadily declining since December. Now, after the biggest single week rate drop in over a decade, the housing market responded well to the news.
After growth slowed in 2018, mortgages and refinancing have experienced a recent surge in demand. As of last week, mortgage applications saw a 8.9% increase from the week prior, and refinancing increased 12% over the same period.
Even the slightest drop in rates can save borrowers hundreds if not thousands of dollars per month depending on the amount of their loan. With a lower rate, home demand and prices are expected to increase as lending becomes cheaper.
The recent drop in mortgage rates comes shortly after the Federal Reserve decided they would halt interest rate increases. Their decision comes amid growing market fears that economic expansion may be slowing.
While the Fed does not oversee the mortgage rate, they have an indirect effect on it. The federal funds rate, which is the cost of lending and borrowing between banks, is set by Fed. When the federal funds rate is higher, banks will often unload the higher price tag of borrowing onto consumers in the form of higher loan and mortgage rates. When the Federal Reserve froze interest rate hikes, both banks and home lenders had good reason to rejoice.
If mortgage rates stay steady around 4%, or drop below it, a continued rise in home demand, price, and refinancing is to be expected. In addition, with the spring selling season now here, the housing market seems ripe for expansion.
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