Mortgage Rates Hit 6-Month Low: Should You Buy Now?

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Mortgage rates have been at competitive levels since mid-2020, and while they’ve risen slightly compared to the latter part of last year, they’ve stayed attractive nonetheless. But last week, the 30-year mortgage rate fell to a six-month low of 3.01%. Meanwhile, the 15-year mortgage set a record low at an average rate of 2.36%.

Not surprisingly, that has caused an uptick in refinancing activity. Applications to refinance a mortgage rose 9% from the previous week. But applications for a mortgage to purchase a new home fell 2% for the week.

A big reason for that decline is that housing inventory is extremely limited on a national level. To put it another way: More people probably would’ve applied for a mortgage if they had found affordable homes to buy. But since home prices are very inflated and inventory is low, plunging rates didn’t create a spike in purchase mortgage applications.

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Should you buy a home today?

From a mortgage rate perspective, it’s an unquestionably good time to buy a home. But while today’s rates are low, they’re not necessarily low enough to offset higher home prices. In May, home prices increased 17% compared to May 2020, according to the Freddie Mac House Price Index. That’s the highest 12-month increase in the history of the index, which dates back to 1975.

Furthermore, the lack of inventory is causing prices to climb even higher. Buyers are frequently ending up in bidding wars in an effort to capitalize on today’s mortgage rates, offering to pay more for a home until other buyers eventually back out.

But bidding wars don’t just impact the homes subject to them — they affect the entire housing market. If a home listed for $400,000 sells for $450,000 because a bidding war drove up its price, the next seller in that same market is more apt to list their home for $450,000 rather than $400,000 after seeing that buyers are willing to pay that price — hence the vicious cycle.

Therefore, while mortgage rates are attractive right now, you may be better off waiting to buy a home until later this year or in 2022. While mortgage rates may climb some from today’s levels, there’s a very strong chance they’ll stay low for the remainder of this year, and probably through the following year.

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If you own a home already, now is a good time to refinance your mortgage. Though refinance rates tend to be a bit higher than rates for a new purchase mortgage, the offers available today are definitely worth snagging. Refinancing could set you up with a much lower monthly payment, especially if you have a strong credit score that helps you qualify for a great rate.

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View more information: https://www.fool.com/the-ascent/mortgages/articles/mortgage-rates-hit-6-month-low-should-you-buy-now/

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