Effective Rate on New Home Loans Continues Downward Drift

On average, the contract rate on conventional mortgages used to purchase newly-built homes, remained a constant 4.03 percent in December, according to data released yesterday by the Federal Housing Finance Agency (FHFA). However, initial fees and charges on the loans dropped form 1.23 percent in November down to 1.16 percent. As a result, the average effective rate on new home loans (which amortizes initial fees over the estimated life of the loan) edged down from 4.16 to 4.14 percent—continuing the downward drift that began after a 26 basis point surge in June.

Eff Rate Dec 14

Meanwhile, reversing the trend of the previous three months, the average price of new homes purchased with conventional loans declined by $6,000, to $437,300 in December—which still ranks as the second highest average new home price on record.

Loan Amt Dec 14

On the other hand, the average size of the loans used to purchase the new homes continued to climb—to an all-time high of $336,500.  Because the average price declined while the average loan amount increased, the average loan-to-price ratio on conventional mortgages used to purchase new homes increased by a full percentage point in December, to 78.9 percent—the highest it’s been since 2011.

LTP Dec 14

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in December. For other details about the survey, see the technical note at the end of FHFA’s January 29 news release.



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