Analysis: First-time homebuyers need more than just lower mortgage rates

Mortgage rates in the U.S. dropped closer to historic lows this week, but that may do little to help first-time buyers as starter homes vanish.

The average rate for a 30-year fixed mortgage was 3.55%, down from 3.6% last week and the lowest since November 2016, Freddie Mac said in a statement Thursday. A year ago, it was more than 4.5%. The 15-year average slipped to 3.03% from 3.07%.

While the drop in borrowing costs should be making purchases more affordable, competition is only heating up for entry-level properties, driving prices further out of reach. Buyers of pricier homes can more easily take advantage of low rates because they have access to a deeper pool of inventory. Cheaper mortgages are also helping current borrowers who want to save a little money.

"It's very good news for homeowners looking to refinance," George Ratiu, senior economist for, said in a phone interview. "For a lot of buyers, they're running out of product to buy."

Sales of previously owned homes, sluggish for much of this year, rose in July to a five-month high, the National Association of Realtors said Wednesday. But purchases priced below $100,000 fell more than 10% from a year earlier, while they soared in every price category above $250,000.

At the same time, the supply of homes listed for less than $200,000 declined 10% from the previous July, while those with asking prices of $750,000 and above jumped almost 7%, according to

The Federal Reserve last month dropped its benchmark lending rate for the first time since 2008, citing signs of a slowing economy and headwinds from trade-policy uncertainty. The fact that the Fed is concerned about growth could have a psychological impact on would-be homebuyers, who may start to hesitate about making a big purchase, Ratiu said.

But while the central bank is expected to make more cuts in the future, mortgage rates are likely to flatten in the coming months, he said.

The 30-year average has a way to go before touching the record low of 3.31%, reached in 2012.

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