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National mortgage rates were mostly up compared to a week ago, according to rate data compiled by Bankrate. Average rates for 30-year fixed, 15-year fixed and jumbo loans increased, while 5/1 ARM rates decreased.

The multiple rate cut predictions from the start of the year may be no more, as many experts expect rates to stay higher for longer. The movement of fixed mortgage rates parallels the 10-year Treasury yield, which moves as investor appetite fluctuates with the state of the economy, inflation and Federal Reserve decisions. At the close of the latest Fed meeting on May 1, policymakers held firm and opted not to cut rates. The recent April Consumer Price Index (CPI) data shows inflation declining, but still not to the 2 percent rate the Fed wants.

“The market was enamored with a slightly lower CPI. We are in a ‘buy on any positive news no matter how modest’ state,” says Dick Lepre of RealFinity.

Often, the decision to buy a home isn’t based on market shifts. It comes down to what you need. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than hoping for a future of more favorable rates and home prices that might not materialize.

Rates last updated May 30, 2024.

These rates are Bankrate’s overnight average rates and are based on the assumptions here. Actual rates available across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Thursday, May 30th, 2024 at 7:30 a.m. ET.

30-year mortgage climbs, +0.14%

Today’s average 30-year fixed-mortgage rate is 7.17 percent, an increase of 14 basis points since the same time last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.36 percent.

At the current average rate, you’ll pay principal and interest of $676.76 for every $100,000 you borrow. That’s an increase of $9.44 over what you would have paid last week.

15-year mortgage rate goes up, +0.19%

The average 15-year fixed-mortgage rate is 6.62 percent, up 19 basis points over the last seven days.

Monthly payments on a 15-year fixed mortgage at that rate will cost $878 per $100,000 borrowed. The bigger payment may be a little harder to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much faster.

5/1 adjustable rate mortgage retreats, -0.21%

The average rate on a 5/1 ARM is 6.34 percent, ticking down 21 basis points since the same time last week.

Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. To put it another way, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for those who expect to refinance or sell before the first or second adjustment. Rates could be substantially higher when the loan first adjusts, and thereafter.

While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.

Monthly payments on a 5/1 ARM at 6.34 percent would cost about $622 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loan’s terms.

Jumbo mortgage interest rate trends upward, +0.08%

The average jumbo mortgage rate is 7.22 percent, up 8 basis points over the last week. This time a month ago, the average rate for jumbo mortgages was higher at 7.44 percent.

At the average rate today for a jumbo loan, you’ll pay a combined $680.14 per month in principal and interest for every $100,000 you borrow. That’s up $5.41 from what it would have been last week.

Refinance rates

Current 30 year mortgage refinance rate advances, +0.12%

The average 30-year fixed-refinance rate is 7.18 percent, up 12 basis points from a week ago. A month ago, the average rate on a 30-year fixed refinance was higher at 7.36 percent.

At the current average rate, you’ll pay $677.43 per month in principal and interest for every $100,000 you borrow. That’s an additional $8.09 per $100,000 compared with last week.

Where are mortgage rates heading?

The rates on 30-year mortgages mostly follow the 10-year Treasury yield, which changes with the market, while the cost of variable-rate home loans more directly mirrors the Fed’s moves.

If and when the Fed cuts interest rates depends on economic reports of new data, such as the inflation rate and the jobs market. April’s CPI data — which measures inflation — showed inflation at 3.4 percent. While inflation has fallen since its peak in 2022, it’s still above the Fed’s target rate of 2 percent.

“The April CPI report revealed that the rate of inflation has cooled for the first time in 6 months,” says Melissa Cohn of William Raveis Mortgage. “While this one report is not enough evidence of cooling inflation to get the Fed to implement a rate cut, it is the first step.”

Broader economic factors, such as inflation and employment, affect the Fed’s decisions on rate changes, but your rate is also affected by your personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.

What today’s rates mean for you and your mortgage

Mortgage rates change daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at current market rates.

To help you uncover the best deal, get at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.

“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”

More on current mortgage rates

Methodology

Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).

The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.

Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.

Source: bankrate.com

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Soaring mortgage rates got you down? If you’re thinking about buying a home, you’re probably wondering: what will mortgage rates be doing in 2025? Experts predict a drop in 2025 but will they be right? Buckle up, because while predicting the future is no walk in the park, we can explore what the experts are saying and unpack some key factors that will likely influence mortgage rates next year.

As of May 30th, 2024, the 30-year fixed-rate mortgage (FRM) averaged 7.03%, according to the Primary Mortgage Market Survey®️. Here’s a quick snapshot of current mortgage rate trends:

  • 1-Week Change: +0.09%
  • 1-Year Change: +0.24%
  • 4-Week Average: 7.02%
  • 52-Week Average: 7.00%
  • 52-Week Range: 6.60% – 7.79%

This information provides a helpful baseline as we delve into the predictions for 2025. But, factors such as inflation, economic growth, monetary policy, and global market conditions all play a role in shaping the future of mortgage rates. Let’s Lock In On the Forecasts.

Mortgage Rate Forecast: Experts Predict a Drop (Will They Be Right?)

Experts are gazing into their crystal balls and offering predictions about mortgage rates for 2025. Here’s a breakdown of what they’re saying:

A Gradual Downward Slope for Rates:

Major industry players like Fannie Mae and the Mortgage Bankers Association are forecasting a downward trend in rates throughout 2025. Their estimates range from 5.5% to 6.0% by the fourth quarter, which would be a welcome relief for potential homebuyers.

This would represent a significant decrease from the current rates hovering around 6.8%, offering a more attractive borrowing environment for those looking to lock in a mortgage.

Major industry players are also forecasting a downward trend in rates throughout 2025. Here’s a peek at what some of them are predicting:

  • U.S. News: Expects the 30-year fixed mortgage rate to be in the high-5% range by the end of 2025.
  • Mortgage Bankers Association (MBA): Predicts a rate of 5.9% in Q1 2025.
  • CBS News: Projects rates could be 6% or below by Q1 2025.
  • Wells Fargo: Forecasts a rate of 5.8% by the end of 2025.

However, it’s important to note that these predictions come with a degree of uncertainty. As a result, forecasters often advise caution and suggest that these projections are best viewed as guidelines rather than guarantees.

The Fed Factor:

The Federal Reserve plays a central role in setting interest rates, which in turn influences mortgage rates. In 2023, the Fed raised interest rates in an effort to combat inflation. If inflation remains high in 2025, the Fed may continue to raise rates, or keep them steady at a higher level.

This could limit the potential for significant decreases in mortgage rates. Conversely, if the Fed feels that inflation is under control and the economy is starting to slow down, they may decide to cut interest rates. This would likely lead to a decrease in mortgage rates as well.

So, the Fed’s actions regarding interest rates will be a major factor to watch in 2025. By following the Fed’s pronouncements and economic data releases, you can get a better sense of where interest rates are headed and how that might impact mortgage rates.

What Else Matters?

While expert forecasts are a good starting point, there’s more to the story. Here are some additional factors that could influence mortgage rates in 2025:

  • The Inflation Rollercoaster: Inflation is a major concern right now. As of May 2024, Morningstar expects inflation to average 1.9% from 2024 to 2028, which is slightly below the Federal Reserve’s (Fed) 2% inflation target. This forecast suggests a potential for a “soft landing” where inflation gradually returns to normal without causing a recession. However, if inflation is higher than expected, the Fed may be forced to take more drastic measures, such as raising interest rates more aggressively, to control inflation. This could put upward pressure on mortgage rates.
  • The Housing Market: If home prices continue to rise, even a slight decrease in mortgage rates might not make much of a difference in affordability for potential buyers. In fact, it could even create a situation where lower rates fuel further increases in home prices, essentially canceling out the benefit of the lower rate. This is because lower rates allow buyers to qualify for larger loans, which can drive up competition and push prices even higher. Additionally, if overall economic conditions weaken in 2025, it could lead to a decrease in buyer demand. This could help to stabilize or even cool off home prices, making them more affordable for buyers, even if mortgage rates don’t fall significantly.

The Takeaway: Be Prepared, Not Paranoid

Predicting mortgage rates is like predicting the weather – it’s not an exact science. But here’s the good news: even with some uncertainty, you can still make smart decisions about buying a home.

  • Do Your Homework: Stay informed about economic trends and the Fed’s actions. The more you know, the better prepared you’ll be to make informed choices.
  • Work with a Pro: A good mortgage lender will walk you through your options and help you find the best rate for your situation. Don’t hesitate to shop around and compare rates from different lenders.
  • Focus on Affordability: Don’t get hung up on the absolute interest rate number. What truly matters is whether the monthly payment fits comfortably within your budget.

Remember, buying a home is a long-term investment. While getting a good interest rate is important, it shouldn’t be the sole factor driving your decision. By carefully considering your financial situation and keeping an eye on the market, you can position yourself to make a confident move when the time is right.

ALSO READ:

Interest Rates Predictions for 5 Years: Where Are Rates Headed?

When is the Next Fed Meeting on Interest Rates in 2024?

Projected Interest Rates in 5 Years: A Look at the Forecasts

Mortgage Rate Predictions for Next 5 Years

Mortgage Rate Predictions for the Next 2 Years

Mortgage Rate Predictions for Next 3 Years: Double Digit Rise

Mortgage Rate Predictions for Next Month: June 2024

Source: noradarealestate.com

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GO Mortgage and PacRes Mortgage are set to merge by the end of September.

The deal will give both lenders access to new regions of the country and help drive down the cost to originate loans, a press release Friday said. 

The transaction is expected to close in the third quarter of 2024, after which Michael Isaacs, the CEO of GO Mortgage, will take the helm of the combined company. The cost of the deal was not disclosed.

“This merger is a strategic move that blends our commitment to outstanding service and community support,” said Isaacs, in a written statement. “By uniting our unique capabilities and resources, we will achieve significant operational improvements and first innovation.”

Other organizational reshuffling will include the CEO of PacRes, Matt Stashin, joining the GO Mortgage board of directors and Melissa Stashin, president and cofounder of PacRes, will be the president of the combined company. Eric Wiley, the executive vice president of PacRes, will move into the role of chief experience officer and Andrew Panagos, the current president of GO Mortgage, will be the chief operating officer.

GO Mortgage, an Ohio-based lender, has a larger footprint on the East Coast, while Oregon-based PacRes Mortgage is active in the Pacific Northwest region.

The deal will combine the 91 sponsored loan officers of GO Mortgage and the 63 LOs of PacRes, resulting in a little more than 150 originators, the Nationwide Mortgage Licensing System shows.

GO Mortgage has 26 active branches and PacRes has 16 branches, according to the NMLS.

“Combining the companies creates new and exciting opportunities for both organizations,” said Melissa Stashin, the soon to be president of the merged company. “This merger represents two culturally-aligned and highly complementary brands joining forces to serve our clients and employee-partners better.”

Source: nationalmortgagenews.com

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Data Driven Rally, But Next Week’s Data is More Important

By:
Matthew Graham

Fri, May 31 2024, 4:23 PM

Data Driven Rally, But Next Week’s Data is More Important

By the end of this holiday-shortened week, bonds didn’t quite manage to completely erase the damage done during the first half, but they came close enough to help balance the near term outlook.  Credit goes to the slightly lower reading in Core PCE for the bulk of the AM rally.  But Chicago PMI didn’t hurt, falling to the lowest levels in more than a decade apart from the initial covid lockdown. Bonds didn’t rally for much longer after that and then spent the rest of the day in a sideways, narrow range, just above the 4.50% technical level.  As big as this week’s apparent volatility may have been, next week’s potential is much bigger as it brings the typical combo of events seen during the 1st week of every month (ISMs, JOLTS, ADP, NFP).

    • Core PCE m/m
      • 0.2 vs 0.3 f’cast
    • Core PCE  y/y
      • 2.8 vs 2.8 f’cast/prev
    • Chicago PMI
      • 35.4 vs 41.0 f’cast, 37.9 prev

08:58 AM

Stronger after PCE data.  MBS up 5 ticks (.16) and 10yr down 4.4bps at 4.509

10:03 AM

Additional gains after Chicago PMI with MBS up 7 ticks (.22) and 10yr down 6.1bps at 4.491

01:11 PM

MBS an eighth off best levels but still up 3 ticks (.09) on the day.  10yr still down 4.1bps at 4.511 but up from lows of 4.49.

02:54 PM

Weakest levels of the afternoon with MBS up only 1 tick (.030).  10yr still down 3.9bps at 4.513

 Download our mobile app to get alerts for MBS Commentary and streaming MBS and Treasury prices.

Source: mortgagenewsdaily.com

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Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate mortgages to write unbiased product reviews.

Average 30-year mortgage rates spiked above 7% last month, but they’ve been a bit lower so far in May. As inflation decelerates, mortgage rates should come down further.

Once inflation cools sufficiently, the Federal Reserve is expected to start lowering the federal funds rate. This should remove much of the upward pressure that’s keeping mortgage rates high. But it could be a while before this happens.

According to the CME FedWatch Tool, the Fed may only cut rates once this year at one of its fall or winter meetings. This means it’s possible that mortgage rates won’t go down much in 2024. But if inflation continues to slow in the coming months, mortgage rates could start trending down sooner.

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Mortgage Calculator

Use our free mortgage calculator to see how today’s interest rates will affect your monthly payments.

Mortgage Calculator

$1,161
Your estimated monthly payment

Total paid$418,177
Principal paid$275,520
Interest paid$42,657
  • Paying a 25% higher down payment would save you $8,916.08 on interest charges
  • Lowering the interest rate by 1% would save you $51,562.03
  • Paying an additional $500 each month would reduce the loan length by 146 months

By clicking on “More details,” you’ll also see how much you’ll pay over the entire length of your mortgage, including how much goes toward the principal vs. interest.

30-Year Fixed Mortgage Rates

Last week’s average 30-year fixed mortgage rate was 6.94%, according to Freddie Mac. This is an eight-basis-point decrease from the previous week.

The 30-year fixed-rate mortgage is the most common type of home loan. With this type of mortgage, you’ll pay back what you borrowed over 30 years, and your interest rate won’t change for the life of the loan.

The lengthy 30-year term allows you to spread out your payments over a long period of time, meaning you can keep your monthly payments lower and more manageable. The trade-off is that you’ll have a higher rate than you would with shorter terms or adjustable rates. 

15-Year Fixed Mortgage Rates

Average 15-year mortgage rates inched up to 6.24% this week, according to Freddie Mac data. This is a four-basis-point decrease since the week before.

If you want the predictability that comes with a fixed rate but are looking to spend less on interest over the life of your loan, a 15-year fixed-rate mortgage might be a good fit for you. Because these terms are shorter and have lower rates than 30-year fixed-rate mortgages, you could potentially save tens of thousands of dollars in interest. However, you’ll have a higher monthly payment than you would with a longer term.

How Do Fed Rate Hikes Affect Mortgages?

The Federal Reserve has increased the federal funds rate dramatically to try to slow economic growth and get inflation under control. So far, inflation has slowed significantly, but it’s still a bit above the Fed’s 2% target rate.

Mortgage rates aren’t directly impacted by changes to the federal funds rate, but they often trend up or down ahead of Fed policy moves. This is because mortgage rates change based on investor demand for mortgage-backed securities, and this demand is often impacted by how investors expect Fed hikes to affect the broader economy. 

The Fed has indicated that it’s likely done hiking rates and that it could start cutting this year. This would allow mortgage rates to trend down later this year.

When Will Mortgage Rates Go Down?

Mortgage rates increased dramatically over the last two years, but they’re expected to go down at some point this year.

In April 2024, the Consumer Price Index rose 3.4% year-over-year. Inflation has slowed significantly since it peaked last year, but it has to slow further before rates can continue trending down.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans. 

Molly Grace

Mortgage Reporter

Source: businessinsider.com

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Average mortgage rates as tracked by Freddie Mac rose back above 7% following what some termed weak investor response at Treasury auctions as well as reaction to strident comments by Federal Reserve officials about inflation.

The 30-year fixed rate mortgage averaged 7.03% on May 30, a gain of 9 basis points over last week when it averaged 6.94%. For the same week in 2023, the 30-year FRM was 24 basis points lower at 6.79%.

“More hawkish commentary about inflation and tepid demand for longer-dated Treasury auctions caused market yields to rise across the board,” said Sam Khater, Freddie Mac chief economist, in a press release. “This reality, as well as economic signals that have moved sideways over the last few weeks, have resulted in mortgage rates drifting higher as markets continue to dial back expectations of interest rate cuts.”

As for the 15-year FRM this week, its average increased 8 basis points week-to-week to 6.36%, from 6.24% and up 18 basis points year-over-year from an average of 6.18%.

The movement came after another week where the 10-year Treasury yield rose steadily, to a close of 4.62% on Wednesday from 4.43% on the same day one week earlier. In trading on Thursday morning, it dropped back to 4.56% as of 11 a.m. Eastern time.

Another source that had rates barely above the 7% mark one week ago, increased substantially, according to information from product and pricing engine provider Lender Price posted on the National Mortgage News.

The 30-year FRM was at 7.275% at 11:15 a.m. on Thursday morning, Lender Price said, up from 7.03% one week earlier.

Zillow’s rate tracker had the 30-year fixed up a massive 20 basis points over the previous week’s average, to 6.91% from 6.71%.

Those gains were attributed to investor worries over the size of the U.S. government’s debt, said Orphe Divounguy, senior economist at Zillow Home Loans.

“The Federal Reserve Beige Book, released this week, pointed to a slowing U.S. private sector — a sign that inflation could slow,” said Divounguy in a Wednesday afternoon statement. “But while slower consumer spending is expected to pull economic growth and inflation lower, rising government deficit spending could offset this drag.”

Divounguy is worried about an imbalance between supply and demand for U.S. Treasuries, especially the longer duration ones like the 10-year, that will put upward pressure on the yields and in turn, mortgage rates.

In a May 29 note, investment banker Louis Navellier wrote “Interest rates, which had marched down the first two weeks of May, following [Federal Reserve Chairman] Jerome Powell dismissing the possibility of a rate increase, but have since retraced most of that move, as the timing of a rate cut kept getting pushed farther down the calendar by ‘Fed Speak’ and the undeniable reality that if the Fed is really sticking to their 2% target inflation that it probably will take many more months, given the strength of the economy, employment, and spending.”

The National Association of Realtors released its April pending home sales report on Thursday morning. These were down 7.7% month-to-month and 7.4% versus 2023, which NAR blamed on higher mortgage rates.

“Household income remains strong as the labor market continues to demonstrate resiliency, yet mortgage rates remain elevated in the Fed’s ‘higher-for-longer’ interest rate environment,” Odeta Kushi, deputy chief economist at First American Financial, said in comments on the pending sales report.

“If the Fed cuts rates later this year, all else held equal, it should result in lower mortgage rates, boosting affordability and bringing buyers off the sidelines,” Kushi continued.

Source: nationalmortgagenews.com

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This week got off to a late start as markets were closed on Monday for Memorial Day. Upon returning to the office, traders began pushing rates higher almost immediately.

It’s often said that the bond market can experience elevated, seemingly random volatility amid the lighter trading participation seen on the days surrounding 3-day weekends.  Tuesday may have been a good example as it brought the biggest move of the week despite an absence of high consequence data.

That’s not to say that data was completely absent.  Traders digested comments from several Fed speakers with the most memorable example coming from Minneapolis Fed’s Kashkari who said he’d need to see “many” more months of good inflation data before the Fed would consider cutting rates.  This is a departure from the average Fed speaker who uses words like “several” to discuss the same dependency.  

In addition to Fed comments, there was a condensed schedule of Treasury auctions.  These regularly scheduled auctions account for the “supply” side of supply and demand in the bond market.  Higher supply means lower prices and higher rates, all other things being equal.  In this case, the amount of supply is published well in advance, but the auction process provides a temperature check for investor demand.  The relatively lower demand at this week’s auctions also played a role in pushing rates higher in the first two days.

Things began to improve on Thursday–not only because auctions were over, but also due to rate-friendly revisions in the quarterly GDP data.  Finally, Friday’s PCE inflation data helped add momentum to Thursday’s recovery.

The PCE price index is similar to the Consumer Price Index (CPI).  Both are official government measures of inflation.  PCE is released 2 weeks after CPI.  As such, it tends to produce less volatility, but the Fed actually prefers it to CPI when it comes to assessing the 2% inflation target.  

Clearly, progress toward the 2% target has slowed, but it is also technically continuing.  When we look at the monthly version of the same data, we can see that the continuation wasn’t necessarily a given based on how the numbers came out in the first quarter.  January, specifically, was alarming.  If January numbers were repeated for 12 months, the annual inflation level would be closer to 6% as opposed to just under 3%.

Feb/Mar reports were lower, but still suggested an annualized inflation level well over 3%.  This week’s data (for the month of April) is still nowhere near the lower readings seen last year, but it showed more progress in the right direction after January’s scare.

Mortgage rates haven’t calmed down as fast as the rest of the bond market.  Mortgage rate volatility was even more elevated due to the structure of the underlying mortgage market causing some pricing overlap when rates move through levels ending in .125% or .625%.  To simplify a very complicated explanation, there’s very little difference between 7.125% and 7.25% as far as most lenders are concerned.  As such, when rates move up past 7.125%, the next viable stop is 7.375%, even if the underlying market movement would normally only have pushed rates up to 7.25%.

The housing market continues expressing its lack of enjoyment of 7%+ mortgage rates.  The most recent evidence was this week’s Pending Home Sales Index from the National Association of Realtors.

In the week ahead, the potential volatility only increases as we’ll get several top tier economic reports.  Apart from Thursday, every day of the week has a scheduled report with the power to move markets by at least as much as any of this past week’s data.  Friday’s jobs report is particularly potent, even if not quite in the same league as the Consumer Price Index (CPI) these days.

Source: mortgagenewsdaily.com

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Felix Aidala, Andrew Haughwout, Ben Hyman, Jason Somerville, and Wilbert van der Klaauw

The U.S. housing market has had a tumultuous few years. After falling to record lows during the pandemic, the average 30-year mortgage rate rapidly increased in 2022 and 2023 and now hovers near a two-decade high of 7.2 percent. For those that locked in a low mortgage rate prior to 2022, this steep increase has significantly increased the cost of moving, as taking out a mortgage at current rates would potentially increase their monthly housing payment by hundreds or thousands of dollars, even if the amount they borrowed remained unchanged. As shown by Ferreira et al. (2011), this lock-in effect has the potential to reduce geographic mobility and turnover in the housing market and has gained the attention of Federal Reserve leaders. In this post, we utilize special questions from the Federal Reserve Bank of New York’s 2023 and 2024 SCE Housing Surveys to estimate the extent to which mortgage rate lock-in is suppressing U.S. household’s moving plans.

U.S. Homeowners Plan to Stay Put

In considering how mortgage rate lock-in is affecting mobility, it is also worth noting that moving rates are currently quite low in the United States. While declining mobility intensified slightly in recent years, Koşar et al. (2022) show that it is not just a pandemic-era phenomenon. For example, moving rates have been steadily declining for decades and were already below 10 percent in 2019, whereas they were close to 20 percent in the mid-1980s. Frost (2023) shows that switching residences is even rarer for homeowners, whose moving rates have been bound between 5 percent and 10 percent each year since 2006. With such low moving base rates, it is unclear if we should expect mortgage rate lock-in to significantly reduce geographic mobility.

To assess the impact of mortgage rate lock-in on homeowner’s moving plans, we first asked respondents who currently own a home for the percent chance that they will move in the next three years. As shown in the histograms below, U.S. households’ moving plans generally reflect the decline in mobility that we’ve seen in recent decades. Across the distribution of homeowners’ current self-reported mortgage rates, close to half of respondents assess their probability of moving in the next three years to be less than 10 percent, with almost three-quarters of respondents placing their chances at less than 25 percent.

These patterns are broadly consistent across homeowners with and without a mortgage, as all groups report a mean probability of moving in the next three years between 16 percent and 19 percent. Although these comparisons do not take differences of other characteristics between the groups into account, they are suggestive that few U.S. homeowners are planning to move in the next three years and are comparable to the actual rates of annual mobility we reported above.

Distribution of Self-Assessed Probability of Moving in Next Three Years by Current Mortgage Rate

Source: 2023 and 2024 SCE Housing Surveys.
Note: Figures do not include renters.

Estimating the Lock-In Effect

To understand the extent to which the lock-in effect is suppressing household’s moving plans, we presented homeowners with a mortgage with a hypothetical scenario in which they are offered the option to keep their current mortgage rate if they were to move and buy another home. We then asked them for the chance that they would move in the next three years under this scenario.

As shown in the chart below, the ability to keep one’s current interest rate has a significant effect on respondents’ moving plans, as mortgage holders revise their probability of moving upward by 7.4 percentage points on average. This effect is particularly large for those with relatively low mortgage rates, as individuals with rates below 3 percent revise their average probability of moving up from 17.2 percent to 27.7 percent, and those with rates between 3 percent and 4 percent report an increase from 18.6 percent to 26 percent. These differences are both statistically significant and represent 61 percent and 39.8 percent increases respectively.

As one might expect, these revisions decrease monotonically with a respondent’s current mortgage rate, and those with mortgage rates already above 4 percent do not see a statistically significant increase. That said, it is important to note that this result is largely driven by about a quarter of homeowners. In fact, close to half of respondents do not revise their moving probability at all, and about 73.4 percent revise their probability by 10 percentage points or less. We interpret this to mean that mortgage rates are not a primary factor in most respondents’ relocation plans for the next three years but are a large constraint for a relatively small but significant share of homeowners.

Average Probability of Moving in Next Three Years by Current Mortgage Rate

Source: 2023 and 2024 SCE Housing Surveys.
Note: Black bars indicate 95 percent confidence intervals.

Perhaps a more intuitive way to interpret our results is through the lens of a respondent’s perceived mortgage rate gap, which we define as the difference between their perception of the rate they would receive on a new mortgage today, and their current mortgage rate. The chart below shows that the distribution of perceived rate gaps is largely positive, as respondents generally expect that they would need to take out a higher mortgage than they currently have if they were to move. About 9 percent report negative perceived rate gaps, indicating that they believe they could obtain a better rate than they have now. This could indicate that their personal circumstances have changed since they obtained their mortgage. For example, some of these individuals may have recently seen increases in their credit scores.

Distribution of Mortgage Borrowers’ Perceived Mortgage Rate Gaps

Source: 2023 and 2024 SCE Housing Surveys.
Note: A respondent’s perceived mortgage rate gap is defined as the difference between their perception of the rate they would receive on a new mortgage today and their current mortgage rate.

To put our results in terms of respondents’ perceived rate gaps, consider that at baseline, they report an average probability of moving in the next three years of 17.5 percent, and an average perceived mortgage rate gap of 2.1 percentage points. In our hypothetical scenario, we set their perceived gap to zero percentage points and see their average probability of moving rise to 24.9 percent. If we consider these effects linearly, this implies that a one percentage point decrease in an individual’s perceived mortgage rate gap is on average associated with about a 3.5 percentage point increase in their self-assessed likelihood of moving in the next three years.

Will Reducing Mortgage Rates Increase Mobility?

Private forecasters anticipate that the federal funds rate will decline at some point in the future, with mortgage rates generally expected to follow suit. Our results suggest that these reductions would spur some increase in relocations. That said, most homeowners in our survey do not seem to be making their moving plans based on mortgage rates. For those who are, the effect of rate cuts on their mobility will ultimately depend on their beliefs about the rate they would qualify for on a new home. Indeed, understanding how households form perceptions of the housing market will be an exciting area of research going forward, and important to understanding the extent to which the lock-in effect reduces mobility.

Chart data

Felix Aidala is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Andrew F. Haughwout is the director of Household and Public Policy Research in the Federal Reserve Bank of New York’s Research and Statistics Group. 

Ben Hyman is a research economist in Urban and Regional Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.  

Jason Somerville is a research economist in Consumer Behavior Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.  

Wilbert van der Klaauw is the economic research advisor for Household and Public Policy Research in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:
Felix Aidala, Andrew Haughwout, Ben Hyman, Jason Somerville, and Wilbert van der Klaauw, “Mortgage Rate Lock‑In and Homeowners’ Moving Plans,” Federal Reserve Bank of New York Liberty Street Economics, May 6, 2024, https://libertystreeteconomics.newyorkfed.org/2024/05/mortgage-rate-lock-in-and-homeowners-moving-plans/.

Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).

Source: libertystreeteconomics.newyorkfed.org

Apache is functioning normally

In a largely anticipated move following weeks of criticism from its director, the Consumer Financial Protection Bureau issued an inquiry to examine the impact mortgage closing costs and fees have on borrowers.

In the past several months, CFPB Director Rohit Chopra has issued a stream of comments questioning the fairness of various housing related charges to consumers and other expenses he collectively deemed “junk fees.” But the request potentially foreshadows future CFPB rulemaking that might impose limits on what can be charged, according to some legal experts. 

Among the items Chopra has criticized are interest rate buydowns, property inspections and title insurance. 

“Junk fees and excessive closing costs can drain down payments and push up monthly mortgage costs,” said CFPB Director Rohit Chopra, in a press release. “The CFPB is looking for ways to reduce anticompetitive fees that harm both homebuyers and lenders.”

During a May speech at a leading mortgage industry conference, Chopra directed criticism at the credit reporting industry for steep increases in fees for score data. In those same remarks, he called out prices for employment verification services, and said that many of the fees charged to consumers still amounted to unreasonable and unfair burdens on consumers warranting examination even when disclosed upfront. 

In its latest announcement, the bureau again singled out charges related to credit scores and title insurance. The request for information, or RFI, asked for public comment specifically addressing fees that are currently subject to competition, how they are set and if they have changed in recent years.   

“Even if disclosed, borrowers are compelled to pay the fees and may have no control over cost. In 2022, median closing costs were $6,000, and these fees can quickly erode home equity and undercut homeownership,” the CFPB said.

Comments are open until Aug. 2 and can be made by email or through the federal government’s eRulemaking portal.

Chopra finds himself regularly at odds with many in the mortgage industry, and the CFPB’s inquiry quickly garnered a mix of reactions ranging from praise to disapproval among industry stakeholders. While trade groups have characterized the CFPB’s actions as overregulation that display a lack of understanding about the way the mortgage process works, some lenders also appreciate the efforts to drive down costs that negatively impact their bottom line. 

The Community Home Lenders of America welcomed the inquiry “for highlighting third-party mortgage service provider junk fees, which can harm consumers and reduce access to homeownership,” according to its executive director, Scott Olson 

“In particular, we are pleased the CFPB focused on two areas of concern to our members, credit scoring and title insurance,” Olson also noted in a press release.

But a consortium of industry trade groups, including the Mortgage Bankers Association, Housing Policy Council and American Bankers Association pointed out many of the fees questioned by the CFPB were required by federal statutes and other regulators as a condition of buying and insuring loans. Many of the rules currently in place received the stamp of approval from the CFPB, they added. 

“The industry invested considerable resources to implement these new rules just a decade ago,” a joint statement read.

“If the CFPB is now modifying its previous position and is considering changing this complex regulatory disclosure regime, a rule-making process governed by the Administrative Procedure Act — and supported by a robust cost-benefit analysis — is the only appropriate vehicle to initiate that work,” the trade groups said.

“Given the significant home-price appreciation and swift inflation that consumers have encountered in recent years, a discussion about policies that address affordability burdens while maintaining healthy and competitive mortgage markets makes good sense,” they added.

Meanwhile, the American Land Title Association, which finds itself in the public eye after the announcement of a pilot program aimed at reducing borrower expenses that could offer alternatives or waivers to its products, also took issue with the “junk fee” label but said it appreciated the opportunity to educate federal agencies the value its members provided. 

“Fees for title insurance and other closing costs must be provided and disclosed to consumers under a federally mandated rule that the CFPB itself developed in 2015,” ALTA said in a statement. “Lumping title insurance and settlement services into the category of ‘junk fees’ conflicts with the White House’s own definition, which cites the lack of disclosure of the fee being charged.”

But analyst Bose George of Keefe, Bruyette & Woods said any changes related to title insurance charges would only occur in the event of a second Biden presidential term and may not result in major changes, given the CFPB’s role in creating current regulations.

“We think a change like this, which might just move the title cost into the mortgage rate and effectively be passed on to the borrower in that sense, might not warrant a wholesale change to the closing process,” George said. 

Attorneys serving the mortgage industry took a harsher tone toward the CFPB, with Richard Horn, co-managing partner of Garris Horn raising a red flag for the home finance community in a blog post. 

“It appears to be an attempt to create an administrative record for a future rulemaking that substantively restricts closing costs in some way,” he wrote.

Meanwhile, Peter Idziak, senior associate to Polunsky Beitel Green, claimed the CFPB was engaging in some “sleight of hand” in its announcement, particularly when it came to labeling rate discount points as junk fees.

“It’s not surprising that more borrowers are choosing to pay points with interest rates more than double what they were in 2021, but it’s misleading for the bureau to lump these voluntary costs in with fees that are truly unavoidable,” Idziak said in a statement.

At the same time, Idziak said the CFPB deserved some of the blame for the current state of housing costs.

“A more accurate title of the CFPB’s press release could be, “Well, Well, Well, If it isn’t the ‘Consequences of My Own Actions.’ Completely absent from the bureau’s request for information is any acknowledgment that increasing and overburdensome government regulations and actions by FHFA as conservator of Fannie and Freddie have increased costs of doing business substantially for lenders.”

Source: nationalmortgagenews.com

Apache is functioning normally

Pending home sales fell another 7.7 percent in April according to the National Association of Realtors® (NAR). NAR’s Pending Home Sales Index (PHSI) for the month was 72.3 compared to 78.3 in March. Based on purchase contracts for previously owned single-family homes, townhouses, condominiums, and cooperative apartments, the Index was also down 7.4 percent from its level in April 2023.

“The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market,” said NAR Chief Economist Lawrence Yun. “But the Federal Reserve’s anticipated rate cut later this year should lead to better conditions, with improved affordability and more supply.”

The slowdown in the home sale market is clear when looking at the national PHSI since the Federal Reserve started raising interest rates. The index averaged 115.2 in 2022 and 91.9 in 2023. It has not exceeded 78.5 at any point in 2024.

All four major regions lost ground for the month and year-over-year. In the Northeast, the PHSI level of 62.9 was down 3.5 percent from March and 3.1 percent on an annual basis. The Midwest index dropped 9.5 percent to 70.7 percent, a decline of 8.7 percent from one year ago.

The South lost 7.6 percent and 8.2 percent compared to the two earlier periods to a reading of 88.6. The West’s Index was at 55.9, a decline of 8.5 percent from March and 7.3 percent from the previous April.

“Home prices are hitting record highs, but the pace of gains should decelerate with more supply,” said Yun. “However, the prospect of measurable home price declines appears minimal. The few markets experiencing price declines will be viewed as second-chance opportunities for buyers to enter the market if those regions continue to add jobs.”

The PHSI is considered a leading indicator of existing home sales over the next two months. An index of 100 is equal to the level of contract activity in 2001. The NAR will release existing home sales numbers for May on June 21.

Source: mortgagenewsdaily.com