This week, the average rate for a 30-year fixed FHA loan sank to 3.89%.* That’s the lowest it has been since the week ending on May 22, 2015. Thirty-year mortgage rates have been hovering around 4% for most of this year, partly due to the Federal Reserve’s monetary policies.
Twice a month, the Home Buying Institute conducts an informal email survey of 25 mortgage lenders across the U.S., focusing on those that are “HUD-approved” to offer FHA loans. Among other things, the survey identifies and monitors mortgage-rate trends for home loans insured by the Federal Housing Administration. HBI has been conducting this survey, and reporting the results, since 2013.
Today’s FHA Rates: Lowest Since May 2015
In May 2015, the average 30-year FHA mortgage rate fell to 3.86%, which was three basis points (0.03%) lower than where we are today. The lowest point of the year came in January, when the 30-year average dropped to 3.81%.
Low borrowing costs continue to lure home buyers into the market. The Mortgage Bankers Association (MBA) recently reported a surge in mortgage loan applications. The uptick in volume was mostly the result of home buyers applying for purchase mortgages (as opposed to refinancing homeowners). In all, loan application volume rose by nearly 14% for the week ended on September 18, compared to a week earlier.
According to Mike Fratantoni, MBA’s chief economist, low mortgage rates for FHA and conventional home loans had a lot to do with the surge. “[R]ate declines toward the end of the week likely drove applications from both prospective homebuyers and borrowers looking to refinance,” he said.
FHA loans are popular among home buyers, primarily due to the low down payment of 3.5%. This makes them a popular option for first-time buyers in particular, especially those who have limited funds saved up for a down payment. The news surrounding today’s low FHA rates will likely bring more buyers into the market over the coming weeks, as the U.S. housing market continues to gain ground.
Federal Reserve: Steady as She Goes, for Now
In related news, the Fed recently announced it would prolong its current monetary policy for the time being, and revisit the matter later this year.
Following their September 16 – 17 meeting, Federal Reserve officials said they plan to keep the federal funds rate near zero percent for the foreseeable future. While this doesn’t impact mortgage rates directly, it does have an undeniable indirect effect on lending costs.
The short version is that mortgage rates tend to rise in tandem, more or less, with other types of interest. So by increasing the federal funds rate (which banks use when transferring balances among themselves), the Fed could prompt a corresponding increase in mortgage lending rates.
The question is, when might that happen? And this is a question housing analysts and economists have been asking for many months, due to the tight-lipped nature of the Federal Reserve.
Here’s what we know at this point…
A federal funds rate increase is likely to occur sometime later this year. When it comes, it will probably be announced at one of the regularly scheduled Federal Open Market Committee (FOMC) meetings. There are only two of these meetings left in 2015 — one on October 27 – 28, and the last on December 15 – 16. Barring any unforeseen financial calamities, the Fed will likely announce a rate hike after one of those meetings.
Janet Yellen, chairwoman of the Federal Reserve, recently told an audience at the University of Massachusetts: “Achieving these [favorable economic] conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter.”
* The FHA mortgage rates reported in this article are based on a small sampling of lenders across the U.S. They also take into account discount points paid at closing, and other factors that vary from one borrower to the next. Not all borrowers will qualify for today’s lowest FHA rates. Lender’s assign interest charges based on a variety of factors, such as credit scores, points paid at closing, etc.