U.S. Housing Market Gets a Summer Boost from Low Mortgage Rates

Highlights from this report:

  • Mortgage rates have dropped steadily since the start of 2019.
  • This trend has motivated home buyers and boosted the housing market.
  • Mortgage loan applications surged during the first week of June 2019.

Mortgage rates have declined steadily — and significantly — since the beginning of 2019. And mortgage shoppers are taking notice.

According to a recent industry survey, applications for both purchase and refinance loans surged during the first week of June 2019. This could give the U.S. housing market a boost, as we move further into the summer.

Mortgage Rates at Lowest Level Since 2017

On June 13, Freddie Mac reported that the average rate for a 30-year fixed mortgage loan was 3.82%. That’s the lowest it has been since September of 2017. Thirty-year mortgage rates were average 4.51% at the beginning of 2019. So they’ve come down considerably since then.

Average mortgage rates through June 2019
Chart: Average 30-year mortgage rates over the past year. Source: Freddie Mac.

This kind of trend tends to boost the housing market, by giving home buyers a stronger incentive to make a purchase.

Buyers who plan to use 30-year fixed mortgages, in particular, could benefit from today’s low-rate environment. The “fixed” nature of these mortgage products allows borrowers to lock in a rate for the long term, thereby avoiding any future increases down the road.

Many homeowners could benefit as well, by refinancing into a lower rate and saving money over the long term. According to the latest Freddie Mac report: “These historically low rates should provide continued opportunities for current homeowners to refinance their mortgages…”

Home Loan Applications Surge in June 2019

The housing market is already getting a boost from low mortgage rates. The first and most obvious sign is a recent surge in home loan applications among buyers. All across the country, buyers are rushing to capitalize on today’s low rates. And the numbers reflect this.

According to the latest mortgage application survey conducted by the Mortgage Bankers Association (MBA), application volume surged during the first week of June 2019.

Their composite index (which looks at application volume for both purchase and refinance loans) rose by nearly 27% the first week of June, compared to a week earlier. Without seasonal adjustment, it rose by 38% over the previous week.

According to Joel Kahn, head of economic and industry forecasting for MBA:

“With the 30-year fixed-rate mortgage at its lowest level since September 2017, [home] purchase activity was more than 10 percent higher than a year ago. Demand is still relatively strong, but there is likely restraint from  some prospective buyers, driven by some economic uncertainty…”

Housing Market Could Get a Short-Term Boost

In April, U.S. home sales declined for the second month in a row. This was partly due to a shortage of more affordable houses in many housing markets, and it’s the latest sign of a slowing economy.

But the recent decline in mortgage rates appears to be giving the U.S. housing market a boost. The surge in home loan applications mentioned above is one indicator. We could also see a rise in sales over the coming months, as buyers rush to take advantage of historically low mortgage rates.

In its latest survey announcement, Freddie Mac’s research team stated that this trend “will help sustain the momentum in the housing market in 2019.”

But a Broader Cooling Trend Prevails

Overall, however, the U.S. housing market is cooler today than it was last year. And it could continue to cool through the end of 2019 and into 2020 (despite getting a jolt from low interest rates). This cooling trend is largely driven by two factors — rising house prices and a shortage of “starter homes.”

As we wrote back in May, there is currently a shortage of starter homes in many housing markets across the United States. In this context we’re talking about relatively low-priced properties, the kind that are often preferred by first-time buyers.

According to the latest real estate industry reports, the real estate market had about a 3.5-month supply of homes for sale as of April 2019. Those are tight conditions. Many economists say that a 5- or 6-month supply is considered to be a “balanced” housing market.

Supply is particularly tight at the lower end of the pricing spectrum, where first-time buyers tend to shop. So even those who are eager to capitalize on today’s low mortgage rates might not be able to do so, due to a lack of inventory.

Home prices, meanwhile, continue to climb in many local housing markets. But the rate of appreciation has slowed, for the most part. Additionally, home values in some cities across the country appear to have peaked already — or could do so later in 2019.

Here are the key takeaways:

  • Mortgage rates are hovering at historically low levels right now.
  • This gives home buyers and homeowners a chance to capitalize.
  • The recent drop in rates has led to a surge in loan applications.
  • We could see an increase in home sales over the coming months.
  • Overall, the U.S. housing market appears to be cooling, as of summer 2019.