U.S. mortgage rates fell for the first time in five weeks, reducing borrowing costs from a two- year high as the housing-market recovery shows signs of slowing.
The average rate for a 30-year fixed mortgage dropped to 4.51% this week from 4.58%, which was the highest since July 2011, Freddie Mac said in a statement today. The average 15-year rate declined to 3.54% from 3.6%, according to the McLean, Virginia-based company.
Rising prices and a jump in the 30-year rate from 3.35% in May have pushed some potential homebuyers out of the market by reducing affordability. Contracts to purchase homes last month dropped 1.3%, the most this year, figures from the National Association of Realtors showed yesterday. New-home sales plunged 13.4% to the weakest pace since October, the Commerce Department reported last week.
“We’re starting to see some impact of rising rates holding back sales,” Jed Kolko, chief economist at San Francisco-based property-listings service Trulia Inc. “Rates probably won’t go back to where they were six months ago, at least not until the next big recession.”
Home prices in June jumped 12.1% from a year earlier, the S&P/Case-Shiller index of 20 U.S. cities showed this week. That followed a 12.2% gain in the year ended May, the biggest increase since 2006.
A slowdown in the housing market is “actually needed” after unsustainable price gains in many areas, Stan Humphries, chief economist at property-data company Zillow Inc., said today on Bloomberg Television.
“We need to start slowing down the pace of appreciation right now so that when rates go back to 5% in 2014, it does not leave us in a situation where home prices look inflated,” he said.
Rising home prices are helping lift borrowers out of negative equity, allowing more to refinance or sell properties without losing money. About 12.2 million U.S. homeowners with a mortgage owed more than their properties were worth at the end of the second quarter, down from 15.3 million a year earlier, Seattle-based Zillow said today.