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Low Rates Push Sales, But What About the Homeownership Rate?

home-in-your-handsMortgage rates have been hovering near historic lows for the past several months. Even with an increase of 3 basis points from last week, the average 30-year FRM for the week ending July 28, 2016, is 3.48 percent—only 17 basis points above the all-time low set in 2012, according to Freddie Mac’s Primary Mortgage Market Survey (PMMS) released on Thursday.

The housing industry continues to benefit from these near-historic low rates, which fell below 4 percent in July 2015 and have stayed there since.

“The 10-year Treasury yield remained flat this week in anticipation of the Fed's July policy meeting. Mortgage rates, on the other hand, rose another 3 basis points to 3.48 percent,” Freddie Mac Chief Economist Sean Becketti said. “Nonetheless, home sales continue to benefit from the persistently low mortgage rates with June's new home sales coming in at an annualized rate of 592,000 homes—its fastest pace since 2008.”

The 15-year FRM also bumped up by 3 basis points from the previous week, from 2,75 up to 2.78. It is still down from the same period last year, which it averaged 3.17 percent, according to Freddie Mac.

7-28 Freddie Mac graphWhile the low rates are leading to home sales, those sales may not necessarily be improving the homeownership rate. For starters, the Mortgage Bankers Association reported that mortgage loan volume application for the week ending July 22 was down by 11.2 percent from the previous week.

Also, HUD and the Census Bureau reported on Thursday that the U.S. Homeownership rate declined from 63.4 percent in Q1 down to 62.9 percent in Q2—its lowest level since 1965.

Although the homeownership rate is now at its lowest point in more than five decades, Trulia Chief Economist Ralph McLaughlin said, “the drop isn’t statistically significant from a year ago. However, if the decline is real, it is more likely due to a large increase in the number of renter households than any real decline in the number of homeowner households. While the millennial homeownership rate continues to decline, it’s important to note that the decrease could be just as likely due to new renter household formation as it is their ability to buy homes. Certainly low inventory and affordability isn’t helping their efforts to own, but moving out of their parents’ basement and into a rental unit is also a good sign for the housing market.”

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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