New Home Loans: Rates & House Prices Both Up

In August, interest rates on conventional mortgages used to purchase newly built homes increased for the third month in a row, according to data released yesterday by the Federal Housing Finance Agency (FHFA).  After rising by roughly 1 tenth of a percentage point in June and roughly 4 tenths in July, the average contract interest rate on conventional loans for newly built homes increased by another 26 basis points in August, to 4.20 percent.Rate C Aug13The average initial fee on the new home loans dipped slightly, from 1.11 to 1.06 percent.  That was  not nearly enough to offset the increase in the contract rate, so the effective rate on the loans (after amortizing the initial fees) also increased by 26 basis points, to 4.33 percent.  Meanwhile, the average term on conventional new home loans continues to hover around 28 and half years (28.6 years in August).

Rate E Aug13After the August increases, both the contract and effective rates on new home loans were higher than they’ve been at any time since September of 2011.

The FHFA release also includes data on loan size and house prices. After two months of declines, the average size of new home loans and price of the homes purchased with the loans both increased in July.  The loan amount increased for the second month in a row, to $308,300, while the loan-to-price ratio remained relatively constant at 78.7 percent.  As implied by those numbers, the average price of new homes purchased with conventional loans increased by $6,000, to $400,400—marking only the second time in 2013 that the price has been as high as $400,000.  This is generally consistent with the upward price trend in the Census Bureau’s series on New Home Sales.Price Aug13The information in this post is based on FHFA’s Monthly Interest Rate Survey of  loans closed during the last five working days in each month.   Rates and other terms on loans are usually set 30 to 45 days before the loans actually close.  For other caveats and limitations of the survey, see the technical note at the end of FHFA’s September 27 news release.

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  1. Eye on the Economy: Government Shutdown Adds to Uncertainty | Eye on Housing
  2. Mortgage interest rates and the prices of the new homes they are financing continued to rise in August.

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