Mortgage rates rose this week but remained below 3.00%. Specifically, the 30-year fixed mortgage rate ticked up to 2.99% from 2.95% the previous week. Expect mortgage rates to increase modestly in the following months as the economy continues to recover. NAR forecasts the 30-year fixed mortgage rate to average 3.20% in 2021.
These historically low mortgage rates fuel home buying activity amidst the pandemic and higher unemployment. While June is homeownership month, let's take a look at some facts about homeownership:
- In 2019, 78.7 million people owned a home, with about 1 million new homeowners compared to the previous year. While most of these owners bought their home in 2007, these owners have already accumulated about $125,000 in equity due to price appreciation. Nevertheless, these owners may have saved even more if they refinanced their home as mortgage rates are nearly 3.5% lower compared to 2007.
- According to the U.S. Census, 3 in 5 homeowners still have to make a mortgage payment every month. In the meantime, remember that a rate lower by 3.5% decreases the monthly payment by $400. Thus, homeownership is definitely the main source of wealth for millions of households.
- Although mortgage rates are currently much lower than in 2007, recent and would-be homebuyers need to pay a higher amount for their home loan every month due to record-high home prices. Specifically, while the typical home is nearly 60% more expensive compared to 2007, the monthly mortgage payment for a 30-year fixed rate home loan increases to $1,290 from $1,230 back in 2007. Thus, current low mortgage rates may have dropped the borrowing cost significantly, but rising home prices erode affordability, pricing out some home buyers.
- However, due to favorable demographics with nearly 5 million millennials reaching the age that they typically get married, expect activity to remain strong. NAR forecasts existing and new home sales to rise 10% and 20% in 2021, respectively.