Mortgage Rates Tick Up as LTV Ratio Ticks Down

Interest rates on conventional mortgages ticked up over the month of September 2016 according to data released by the Federal Housing Finance Agency (FHFA). However the increase in mortgage rates reflected a rise in the effective rate on previously occupied homes. Rates on new homes fell in September.

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The FHFA data show that the effective rate on all homes ticked up 1 basis point to 3.73% in September. The increase in mortgage rates overall reflected a 4 basis point rise in the effective rate on previously occupied homes, which settled at 3.78% in September. Meanwhile, rates on newly constructed homes fell 10 basis points to 3.58%.

Despite the uptick in mortgage rates overall, the trend over 2016 has been downward. Between the end of 2015 and September 2016 mortgages rates on all homes have fallen by 37 basis points. Since the end of 2015, the effective rate on newly constructed homes has fallen by 45 basis points while the rate on previously occupied homes fell by 36.

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While mortgage rates on all homes rose over the month, the loan-to-purchase price ratio (LTV ratio) fell during the month. In September the LTV ratio on all homes fell from 80.1% to 79.9%. The decline in the LTV ratio on all homes largely reflected a drop in the ratio for newly built homes. Over the month, the LTV ratio on newly built homes dropped to 78.1% from 78.8% in August while the LTV ratio on previously occupied homes remained basically unchanged, dipping slightly to 80.4% from 80.5%.

Despite a decline over the month of September 2016, the LTV ratio on all homes has trended upward over the year and the upward trend in the LTV ratio on all homes has reflected movements in the LTV ratio on previously occupied homes. After a decline over January 2016 to 76.9%, the LTV ratio on all homes has since risen to 79.9% in September. The rising LTV ratio reflects the trend in the LTV ratio for previously occupied homes. As illustrated by Figure 2 above, the LTV ratio on previously occupied homes fell over January to 76.7% before rising to 80.4% in September. Meanwhile, after some volatility, the LTV ratio on new homes in September settled at 78.1%, its level in December 2015.



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