Taking A Look At First-Time Home Buyer Purchasing Power

Home buyers report that 30-year fixed-rate mortgage rates are 0.75 percentage points higher from one week ago.

April 15, 2020 by Dan Green

The Housing Headline

Mortgage rates are 0.75 percentage points higher versus last week.

The News Behind The Housing Headline

Over fifteen days beginning February 20, 2020, mortgage rates fell to their lowest levels in history. It happened quickly. Mortgage lenders rushed to contact as many existing customers as possible to do a refinance, which is when a homeowner replaces their existing home loan with a new home, usually at a lower interest rate.

Refinances are good for homeowners because they lower monthly payments. Refinances are also good for lenders because refinances generate revenue. However, rates fell faster than lenders expected, which pushed applications from homeowners to an all-time, one-week record.

The result?  All those new mortgages in the supply chain ended up overwhelming Wall Street’s demand  for them, so rates had no choice but to go up – the only way to balance supply vs demand.

Why This Housing News Matters To You

When you buy a home, your monthly mortgage payment is calculated from your mortgage rate, so when mortgage rates change, it affects your budget.

You can’t worry about it, though, because mortgage rates change every day – sometimes two or three times.

Also, rates are unpredictable.

It’s impossible to know whether rates will be higher or lower tomorrow, next month, or next year. This is why is generally good advice to ignore rates on a day-to-day basis and focus on the big picture of buying a home.

Every now and again, though, rates go nuts. This week is one of those weeks.

If you’re buying a home with a $300,000 mortgage, this week’s rise in rates adds $125/month to your housing payment as compared to last week. That’s a big increase, and it’s also unlucky. If you’re not buying a home this weekend, though, shrug it off! Rates will change every day between now and the day you sign a contract.

It’s the rate on that day that you care about.

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