Home Borrowing Costs Decline Again
After a spike in the 30-year fixed-rate mortgage (from the lows seen in early January of 2.65% to a high of 3.18% by April 1st), home borrowing costs declined in April and May, now resting just above their historic lows.
The run-up in rates from January to April was due in part to the specter of rising inflation as the U.S. economy emerged from the pandemic shutdowns. Pent-up consumer demand along with stimulus checks pushed prices for most goods and services higher while supply constraints added fuel to the fire. Lumber costs skyrocketed while oil prices gushed higher.
Currently, lumber costs are now well off their highs. Material costs will begin to level off as production increases, which should somewhat quell rising prices.
The recent decline in rates is due in part to a drop off in mortgage application activity from March 31 to the latest week, and if there is less demand for mortgages, rates decline. In the past 11 weeks ending June 2, 2021, mortgage application activity fell eight times. Simple Economics 101: less demand usually drives the price for goods and services, and in this case mortgages, lower.
So where do rates go from here? Well, if the economy continues to improve, we could see higher rates, but the Federal Reserve is doing whatever it can to keep rates low and ensure the economic recovery continues on an upswing. So don't expect to see a surge higher in home borrowing costs. Don't fight the Fed!
Bottom line: With rates still at historic lows, it is still a great time to purchase the home of your dreams.
Source: Mortgage Market Guide