U.S. Homebuyers Get Rate Reprieve Amid China’s Turmoil

Financial turmoil in China is turning into a boon for U.S. homebuyers as mortgage rates tumble to three-month lows.

The average rate for a 30-year fixed mortgage fell to 3.83 percent on Wednesday, down from 4.26 percent three weeks ago and the lowest since May 8, according to data from Bankrate Inc. The average 15-year fixed rate declined to 3 percent, also a three-month low. Jumbo borrowing costs, for high-balance home loans, are at 4.26 percent, the lowest since early June.

Cheaper borrowing costs couldn’t have come at a better time for American homebuyers who are facing soaring prices, said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. in Chicago. Reduced mortgage rates translate into bigger loans for purchasers by reducing the monthly payments lenders use to qualify applicants.

“Lower rates will give some help to people trying to get into the market, and we need those newcomers,” Piegza said. “Without that influx of new demand, there’s a big concern about what will happen to the housing market.”

The U.S. median existing-home price rose to a record $236,400 in June, according to the National Association of Realtors. Prices climbed in 93 percent of metropolitan areas in the second quarter, the broadest gain in a decade, as lean inventories contributed to buyer competition, the group said on Tuesday.

Buyers had been facing the prospect of higher borrowing costs as investors gird for the Federal Reserve to boost interest rates for the first time in nine years. Now, mortgage rates are retreating after China’s devaluation of its currency boosted demand for U.S. Treasuries.

Bond Investors

The bond investors who set rates by what they’ll pay for mortgage-backed securities are taking smaller yields because they want dollar-denominated assets, Piegza said. They’re also betting that the weakness of the yuan limits U.S. inflation, which erodes the value of fixed payments. China is the world’s largest trading nation.

China’s “yuan devaluation exports their deflation to other countries,” Bill Gross, a portfolio investor with Denver-based Janus Capital Group Inc., wrote in a tweet Tuesday. “Bullish for bonds. Bearish for stocks.”

Some bond investors are speculating that the devaluation of the yuan will cause the Federal Reserve to delay rate increases it planned for later this year. There’s a 40 percent chance the central bank will boost its benchmark at its Sept. 16-17 meeting, data compiled by Bloomberg show. That’s down from 54 percent on Aug. 7.

It’s too soon to draw conclusions about what central bankers will do when they meet next month, William C. Dudley, president of the Federal Reserve Bank of New York, said Wednesday after a speech in Rochester, New York.

What happens with the yuan “has implications much broader than China, it has implications for the global economy,” Dudley said. “I’ll be watching very closely what happens there.”

The U.S. housing market has shifted into high gear after a lull last year. In June, purchases of previously owned homes rose to an eight-year high, the National Association of Realtors reported. First-time buyers accounted for 30 percent of the market during the month, up from 28 percent in June 2014.

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