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Why low mortgage rates don’t always mean more home sales

A sale-pending sign is posted in front of a home in San Francisco.

A sale-pending sign is posted in front of a home in San Francisco. Justin Sullivan/Getty Images

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The Commerce Department said Tuesday new home sales sank by 7.8% last month following another down month in April. This as mortgage rates are also down, too — 30-year mortgages rates are 3.8% on average, just a hair above a nearly two-year low.

Rates like these can make buying a home seem a lot cheaper.

“In the last few months, we’ve seen big gains in purchasing power or house-buying power for consumers,” said Mark Fleming, chief economist with First American.

But monthly fluctuations in mortgage rates probably aren’t going to make or break a decision to buy a house, said Blair DuQuesnay, an investment adviser at Ritholtz Wealth Management.

“If we just look at a $200,000 mortgage, a 1 percentage point drop in a 30-year rate equates to about 100, maybe $125 a month in savings,” DuQuesnay said.

Plus, those ultra-low mortgage rates aren’t for everybody. DuQuesnay said a lot of factors can affect a homebuyer’s mortgage rate, such as their credit score, their income and even the type of house they’re buying.

Then there’s the downpayment. With inventories near historic lows and home prices rising, downpayments are getting more expensive. Fleming said most first-time home buyers don’t put 20% down.

“The single largest impediment for the first-time homebuyer to becoming a homeowner isn’t the cost of financing, it’s accumulating that downpayment,” Fleming said.

And if a borrower doesn’t accumulate enough of a downpayment, the mortgage rate can rise, too.

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