Earlier today, the Federal Housing Finance Agency (FHFA) reported a slight (4 basis point) decline in mortgage interest rates for the month of June. However, the decline was driven entirely by loans on existing homes. The average interest rate on conventional mortgages used to purchase newly built homes moved in the opposite direction, and the increase was fairly strong.
The contract interest rate on new home loans increased from 3.88 to 4.14 percent, while initial fees declined from 1.25 to 1.18 percent. The result was an increase of over a quarter percentage point in the average effective interest rate on new home loans (which amortizes initial fees over the estimated life of the loan), from 4.01 to 4.27 percent. This left the effective rate on loans for new homes slightly higher than the rate on loans for existing homes—the first time this has been the case since November of last year.
Meanwhile, the average size of conventional mortgages used to purchase new homes, and the price of the new homes purchased with the loans, both declined over the month. The decline in price was very small, from $418,800 to $417,500. The decline in average loan size was somewhat larger—a 1.2 percent drop to $316,000.
The combination of smaller loan on a home selling for roughly the same price took the average loan-to-price ratio on new home mortgages down from 78.6 to 77.3—largely reversing the previous month’s upswing.
The above information is taken from FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in June. In the typical case, borrowers lock in a mortgage interest rate well in advance of closing. For other caveats and details on the MIRS methodology, see the technical note at the end of FHFA’s July 31 news release.