Mortgage Rates Decline as Home Affordability Slips

Mortgage rates have been on the decline for a few months now after hitting 2013 highs over the summer. Average conforming 30 year mortgage rates hit 4 month lows last week and are now averaging 4.23 percent. 30 year rates are higher than last week's average of 4.15 percent.

Mortgage Rates are Still Low and Will Remain Low for Now

Overall mortgage rates are higher from the record lows that were set early in 2013 but historically speaking, rates are still low. Higher rates in 2013 combined with home prices rising 12% over the past 12 months have made homes less affordable than they were in 2012. While home affordability has declined as mortgage rates and home prices have increased, homes are still more affordable than during the housing bubble.

Home Affordability Falls to 5 Year Low

Lawrence Yun, The National Association of REALTORS® chief economist, said “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months.  Next month we may see some delays associated with the government shutdown."

The rate of home price appreciation can't be sustained simply because personal income growth doesn't support it. Income growth over the past 12 months was only 1.5 percent, much lower than the home price growth of 12 percent. Home prices have increased 12 percent because home prices are bouncing back from depressed prices since the housing bust.

Home Price Appreciation to Return to Historical Norm

Over the next several years, home price appreciation will return to the historical norm of 1 percent higher than the inflation rate. The current inflation rate is at 1.7 percent and will remain around 2.00 percent for years to come. The Federal Reserve's target rate for inflation is 2 percent so home price increases will be in the 3 percent range.

15 Year Mortgage Rates Today

Mortgage rates today on 15 year conventional loans are averaging 3.29 percent, an increase from the previous week's average 15 year mortgage rate of 3.21 percent. The slight increase in average 15 year mortgage rates this week won't last because long term bond yields are still declining.

By the end of November, average 15 year mortgage rates will fall below 3.00 percent and possibly as low as 2.85 percent. Although the average 15 year rate is still above 3.00 percent, you can find many lenders quoting 15 year refinance rates below 3.00 percent.

Currently, the lowest 15 year refinance rates in our database are at 2.75 percent with points. The best 15 year refi rates without points right now are exactly at 3.00 percent.

Current 30 Year Jumbo Mortgage Rates

Current mortgage rates on 30 year jumbo loans are averaging 4.44 percent, an increase from last week's average 30 year jumbo mortgage rate of 3.35 percent. We expect 30 year jumbo rates to remain below 4.50 percent for the rest of 2013 and possibly fall to the 4.00 percent level.

Searching for the best jumbo rates in our database, the lowest rate is exactly at 4.00 percent with two mortgage points. The lowest 30 year jumbo refi rates available without points are still below the average at 4.125 percent.

Today's Mortgage Rates on 15 Year Jumbo Loans

Today's 15 year jumbo mortgage rates are currently averaging 3.78 percent, down from the prior week's average 15 year jumbo rate of 3.81 percent. For the rest of this year, average 15 year jumbo rates will stay under 4.00 percent but right now you can find lenders quoting rates below 4.00 percent.

The lowest 15 year jumbo refinancing rates in our database are more than 0.50 percent lower than the average rate. The lowest rate right now is at 3.125 percent with points. The lowest rate without points is at 3.50 percent, still more than 0.25 percent below the average.