On average, mortgage interest rates declined in May, according to data released recently by the Federal Housing Finance Agency (FHFA). On conventional mortgages used to purchase newly-built homes, the average contract interest rate dropped by more than 30 basis points, from 4.19 to 3.88 percent. This is the lowest the new home loan rate has been in a year and the first time it has dipped below 4.0 percent since February.
Initial fees increased slightly during the month, from 1.22 to 1.25 percent—far from enough to offset the decline in the contract rate. The result was an average effective rate on new home loans (which amortizes initial fees over the estimated life of the loan) that also dropped by more than 30 basis points, staying barely above 4.0 percent (at 4.01).
Reversing the trend of the prior two months, the average size of conventional mortgages used to purchase new homes—and the price of the new homes purchased with the mortgages—both declined in May. The average loan size declined 1.8 percent to $319,800, while the average home price fell by 3.6 percent to $418,800. Despite the declines, both the average loan size and average new home price remain higher than they had been at any time prior to 2014.
Because the change in price was greater than the change in loan size, the average loan-to-price ratio on conventional mortgages used to purchase new homes increased substantially in May, from 77.0 to 78.6 percent—the highest it’s been since last August, and the first time above 78.0 percent in 2014.