Home Headline News US Home-buyers ‘Trading Up’ on Falling Mortgage Rates

US Home-buyers ‘Trading Up’ on Falling Mortgage Rates

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FLASH: This year’s dive in mortgage rates is giving Americans an incentive to upgrade to pricier houses.

One result of falling borrowing costs is that buyers are able to afford bigger mortgages. Those seeking pricier properties are acting now because their choices are increasing, and profits from selling their current home can fund the down payment on the next one. But at the entry level, where supplies are scarce, low rates mean even heavier competition.

The average rate for a 30-year mortgage dropped for a 5th week running to 3.99%, the lowest since January 2018, Freddie Mac said Thursday.

Data from the Mortgage Bankers Association (MBA) show the average loan size increased to $331,000 last week, up 4% from a year earlier, and climbed as much as 9% during one week in April. Last November, when the 30-year mortgage rate was almost a percentage point higher, mortgage sizes were in decline.

Falling rates help loosen up a tight market. When rates rise, homeowners are more likely to stay put because they don’t want to take on bigger mortgages. But when loan costs fall, they get motivated to trade up. And that frees up entry-level homes for eager 1st-timers.

“There’s a little more inventory on the market, and that’s freeing up the logjam a little,” said the chief economist of the MBA. “But the entry level is still extraordinarily tight.”

Sales are strengthening in move-up price ranges. While deals fell 3% in April from a year earlier for homes costing less than $250,000, they were up 7% for other price segments up to $1-M said the chief economist of the National Association of Realtors.

Buyers of higher-priced homes are just more “interest-rate sensitive,” said the deputy chief economist at Freddie Mac.

“Interest rates will move those people off the margin,” he said. “But there are so many excess buyers in the entry level that it doesn’t affect sales as much” for low-end properties.

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