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Mortgage rates continued to decrease in August, landing at an average rate of 6.50%. According to Freddie Mac, the average monthly rate fell by 35 basis points (bps) from July’s rate of 6.85%. The August rate is down 57 bps from one year ago, which stood at 7.07%.

The 15-year fixed-rate mortgage also saw a decrease, dropping by 45 bps from July to 5.68%, and is now lower compared to last August by 75 bps. Additionally, the 10-year Treasury rate declined 30 bps from 4.28% in July to 3.98%.

Per the NAHB forecast, we expect 30-year mortgage rates to decline slightly to around 6.66% at the end of 2024 and eventually to decline to just under 6% by the end of 2025. The NAHB outlook anticipates the federal funds rate to be cut by 25 bps no later than the December Federal Reserve meeting, although it is possible for the Fed to cut rates in the upcoming FOMC meeting in September.

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The Market Composite Index, a measure of mortgage loan application volume by the Mortgage Bankers Association’s (MBA) weekly survey, saw a month-over-month increase of 10.7% on a seasonally adjusted (SA) basis. Compared to last August, the index increased by 20.8%. While the Purchase Index declined by 2.9%, month-over-month, the Refinance Index jumped 30.8% as borrowers took advantage of the declining mortgage rates to refinance higher-rate loans. On a yearly basis, the Purchase Index is down by 8.6%, while the Refinance Index increased by 87.2%.

The average monthly 30-year fixed mortgage rate has fallen for four straight months with August seeing the largest decrease of 40 basis points (bps), bringing the rate to 6.49%. The current rate is 73 bps lower than last August.

The average loan size for the total market (including purchases and refinances) is up 3.6% from July to $380,800 on a non-seasonally adjusted (NSA) basis. Similarly, the month-over-month change for purchase loans increased 0.6% to an average size of $426,600, while refinance loans rose by 18.5% to an average of $325,800. The average loan size for an adjustable-rate mortgage (ARM) also saw a steep increase of 9.5% for the same period, from $1.01 million to $1.1 million.

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Total outstanding US consumer debt stood at $5.08 trillion for the first quarter of 2024, increasing at an annualized rate of 2.46% (seasonally adjusted), according to the Federal Reserve’s G.19 Consumer Credit Report. From the second quarter of 2023 to the second quarter of 2024, the total increased by 1.84%. This year-over-year (YoY) growth rate is the lowest observed since the first quarter of 2021.

Nonrevolving and Revolving Debt

Of the total outstanding US debt in the first quarter of 2024, the nonrevolving share is 74%, with revolving at 26%. Nonrevolving debt (primarily student and auto loans) stands at $3.73 trillion (SA) for the second quarter of 2024. Revolving debt (mainly credit card debt) stands at $1.34 trillion.

The pace of growth has slowed for both nonrevolving and revolving debt as households’ pandemic-era savings have dwindled. In terms of YoY growth, both nonrevolving and revolving debt peaked in the fourth quarter of 2022 at 15.10% and 5.34% respectively. In the second quarter of 2024, the YoY growth rate for nonrevolving debt decreased to 6.12%, from 7.99% in the first quarter, while the growth rate for revolving debt increased from 0.14% to 0.39%. This was the sixth consecutive quarterly decline in YoY growth for nonrevolving debt while revolving debt saw its first uptick in the YoY rate in five quarters.

Student and Auto Loans

Breaking down the components of nonrevolving debt, student loans account for 47%, and auto loans make up 42% (the G.19 report excludes real estate loans). Collectively, the other loans make up the remaining 11% of nonrevolving debt.

Student loans in the second quarter of 2024 totaled $1.74 trillion (non-seasonally adjusted), marking the fourth consecutive decrease in the YoY rate at -0.96%, following an annual decrease of -1.22% in the previous quarter. The third quarter of 2023 marked the first YoY decrease for student loan debt since the data was first reported.

Auto loan debt for the second quarter of 2024 was $1.57 trillion (NSA). Auto loan YoY growth has steadily decelerated over the past six quarters. The fourth quarter of 2021 saw a high of 13.74% YoY growth compared to the second quarter of 2024 YoY growth rate of 1.95%. This slowdown partially reflects the relatively high interest rate on auto loans, which have increased from 4.52% in Q1 2022 to 8.20% in Q2 2024 (60-month new car loans). However, this car loan rate experienced its first (albeit slight) decline in over two years, falling from 8.22% in the previous quarter.

Credit Cards

The interest rate on credit cards saw its first decrease since the fourth quarter of 2021.  The interest rate for the second quarter of 2024 was 21.51%, falling from 21.59% in the previous quarter. Before this quarter, the rate experienced nine consecutive quarterly increases, with a dramatic increase of 2.8 percentage points from Q3 2022 to Q4 2022. This aligns closely with the Federal Funds Effective Rate increasing 1.47 percentage points during the same period, the highest increase since the 1980s.

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During the second quarter of 2024, credit for residential Land Acquisition, Development & Construction (AD&C) continued to tighten and became even more expensive for most types of loans, according to NAHB’s survey on AD&C Financing. The survey was conducted in July and asked specifically about financing conditions in the second quarter, predating the release of some relatively weak economic data that has raised prospects for monetary policy easing.

The net easing index derived from the survey posted a reading of -33.7 in the second quarter (the negative number indicating that credit was tighter than in the previous quarter). The comparable net easing index based on the Federal Reserve’s survey of senior loan officers posted a similar result, with a reading of -23.8—marking the tenth consecutive quarter of borrowers and lenders both reporting tightening credit conditions.

According to the NAHB survey, the most common ways in which lenders tightened in the second quarter were by reducing the amount they are willing to lend, and by lowering the loan-to-value (or loan-to-cost) ratio, each reported by 85% of builders and developers. After those two ways of tightening, three others tied for third place: increasing documentation, increasing the interest rate, and requiring personal guarantees or other collateral unrelated to the project, each reported by exactly half of the borrowers.

As is often the case, as credit becomes less available it also tends to become more expensive. In the second quarter, the contract interest rate increased on all four categories of AD&C loans tracked in the NAHB survey: from 8.40% in 2024 Q1 to 9.28% on loans for land acquisition, from 8.07% to 9.05% on loans for land development, from 8.24% to 8.98% on loans for speculative single-family construction, and from 8.38% to 8.55% on loans for pre-sold single-family construction.

In addition to the contract rate, initial points charged on the loans can be an important component of the overall cost of credit, especially for loans paid off as quickly as typical single-family construction loans. Trends on average initial points were mixed in the second quarter. The average charge on loans for land acquisition was unchanged at 0.88%. The average declined from 0.85% to 0.70% on loans for land development, and from 0.57% to 0.47% on loans for pre-sold single-family construction. On the other hand, on loans for speculative single-family construction, average initial points increased from 0.76% to 0.89%.

Irrespective of changes in points, increases in the underlying contract rate were sufficient to drive up the average effective interest rate (calculated taking both contract rate and initial points into account), on three of the four categories of AD&C loans in the second quarter. The average effective rate increased from 11.09% to 12.22% on loans for land acquisition, from 13.35% to 14.32% on loans for speculative single-family construction, and from 12.95% to 13.08% on loans for pre-sold single-family construction. Meanwhile, the average effective rate declined on loans for land development—from 13.10% in 2024 Q1 to 12.93%.

The average effective rates on loans for land acquisition and speculative single-family construction in the second quarter of 2024 were the highest they’ve been since NAHB began collecting the information in 2018. However, there’s a reasonable chance the situation will improve in the third and fourth quarters, as the Federal Reserve has begun signaling its intent to cut rates later this year.

More detail on credit conditions for builders and developers is available on NAHB’s AD&C Financing Survey web page.

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Mortgage rates continued to decrease in July, landing at an average rate of 6.85%. According to Freddie Mac, the average monthly rate fell by 7 basis points (bps) from June’s rate of 6.92%. This current rate is nearly identical to the rate from one year ago, which stood at 6.84%.

The 15-year fixed-rate mortgage also saw a decrease, dropping by 5 bps from June to 6.14%, and is now lower compared to last July by 4 bps. Additionally, the 10-year Treasury rate declined 9 bps from 4.37% in June to 4.28%.

Per the NAHB forecast, we expect 30-year mortgage rates to decline slightly to around 6.66% at the end of 2024 and eventually to decline to just under 6% by the end of 2025. The NAHB outlook anticipates the federal funds rate to be cut by 25 bps no later than the December Federal Reserve meeting and six more rate cuts in 2025 as inflation approaches the Fed’s policy target.

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This article was originally published by a eyeonhousing.org . Read the Original article here. .

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