Although home prices are continuing their upward climb, mortgage rates continue to hover around three-year lows, but what's the catch to those low rates?
According to Freddie Mac, the 30-year fixed-rate mortgage (FRM) averaged 3.61 percent for the week ending May 5, 2016, with an average 0.6 point. Last week, the 30-year FRM averaged 3.66 percent, and a year ago it averaged 3.80 percent.
The 15-year FRM also fell this week from 2.89 percent last week to an average of 2.86 percent this week. The 15-year FRM is down from last week when it averaged 2.89 percent and down from the year-ago average of 3.02 percent.
Sean Becketti, Chief Economist, Freddie Mac said, "The Fed's decision to stand pat followed by a week of assorted unsettling news drove Treasury yields lower. As a consequence, the 30-year mortgage rate drifted down to 3.61 percent, just 3 basis points above the low for the year. Since the start of February, mortgage rates have varied within a narrow range providing an extended period for house hunters to take advantage of historically low rates."
Now for the catch. Jonathan Smoke, Chief Economist of Realtor.com determined that "only the most highly qualified buyers are getting these loans. With little margin for profit, lenders have become even more risk-averse, so indicators of credit tightness such as the average FICO score have ticked up this year as rates have gone down," he said in a report.
The MBA's Mortgage Credit Availability Index (MCAI) that mortgage credit availability fell 0.89 percent to 122.4 in April. The MBA noted that a decline in the MCAI indicates that lending standards are tightening, while an increase means that credit is loosening. The index was benchmarked to 100 in March 2012.
"Mortgage credit became less available in April as a result of two opposing trends, resulting in a net decrease to the index," said Lynn Fisher, MBA's VP of Research and Economics. "Investors continued to roll out Fannie Mae and Freddie Mac's low down payment loan programs, which had a loosening effect on credit availability. However, this was more than offset by tightening among high balance and jumbo loan programs."
Smoke noted that he is not sure where rates will head next, and the Fed is likely to stand still on a rate increase in June in light of the dismal employment data.
He forecasts that the average 30-year rate is likely to remain under 4 percent throughout the spring and summer and into the early fall, while the 30-year conforming rate will end the year at 4.21 percent, up 12 basis points from the end of 2015.
"Given how volatile rates have been this year, there is a good chance that any borrower will see both lower and higher rates from time of application to time of closing—and that’s what makes these options attractive. However, like most good things in life, they come at a price," Smoke said.