Mortgage Rate Drops as Global Financial Markets Affect US Stock Market

Posted by Staff Reporter ( on May 05, 2016 06:27 AM EDT
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Global Markets Continue Last Week's Steep Declinemore big
NEW YORK, NY - AUGUST 24: A screen on the floor of the New York Stock Exchange (NYSE) shows market numbers towards the close of the day on August 24, 2015 in New York City. As the global economy continues to react from events in China, markets dropped significantly around the world on Monday. The Dow Jones industrial average briefly dropped over 1000 points in morning trading and closed down 588 points. (Photo : Spencer Platt/Getty Images)

Mortgage rates continue to drop, as global financial markets appear to have affected the U.S. stock market. While this continuous drop in mortgage rates seem beneficial to interested buyers, the rise in the selling prices of homes in the market appears to negate the said benefits.

According to Mortgage News Daily, mortgage rates dropped again because of the U.S. stock market. The publication notes that several big names in the European banking sector experienced an eight percent drop, which somehow affected the stock market in the U.S., resulting in a drop in mortgage rates.

The average mortgage rate is at 3.625 percent for a conventional 30-year fixed rate for top tier scenarios. This reflects a drop in mortgage rates to two-week lows and the publication predicts that a few aggressive lenders would offer 3.5 percent rates once bond market conditions improve.

While this continuous drop in mortgage rates appears to attract more would-be homebuyers, National Mortgage News reports that the continuous increase in the selling price of homes negates the drop. According to Black Knight Financial Services, interest rates have fallen about 35 basis points, which would have saved homebuyers about $44 per month on their mortgage payments.

However, the increase in the selling price of homes (partly because of the increase in the demand) appears to reduce the savings that homebuyers would get from the drop in mortgage rates. This $44-savings, therefore, would be reduced to just $18 per month based on the home price appreciation.

In some parts of the country, particularly in Colorado, Oregon and Washington, price appreciation has gone so high that it has completely negated the calculated savings from the drop in the mortgage rates. The drop, however, continues to be seen as a benefit for most buyers.

"If rates hadn't dropped over the past four months, it would cost an additional $28 to buy the median-priced home today as compared to December 2015," said Ben Graboske, senior vice president of data and analytics at Black Knight.

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