Mortgage rates have recently dropped to a three-week low, signaling positive shifts in both home prices and inventory. These trends are gradually tilting the market in favor of buyers.
In the week ending May 1, the average rate on a 30-year fixed-rate mortgage decreased by 13 basis points to 6.87%, as reported by Zillow to BW. A basis point represents one one-hundredth of a percentage point.
How Lower Rates Impact Buying Power
With the decrease in mortgage rates from 7% to 6.87% on a 30-year loan, buyers can now borrow more while maintaining the same monthly payment. This can potentially enable them to afford more expensive homes. For instance, a buyer with a $2,600 monthly budget for principal and interest could now borrow $5,200 more at the reduced rate ($396,000 at 6.87% compared to $390,800 at 7%).
Positive Shifts in the Housing Market
Home prices continue to rise, albeit at a slower pace than a year ago.
According to Freddie Mac’s monthly house price index, nationwide home prices increased by 3% in the 12 months ending in March, a significant deceleration from the 6.95% growth seen in the previous year. This moderation is attributed to a 31.6% increase in housing inventory compared to the previous year, as reported by Realtor.com. The surplus of homes for sale provides buyers with more choices and improves overall market conditions.
Factors Influencing Rate Fluctuations
The recent decline in mortgage rates does not have a straightforward explanation.
While economic output experienced a slight contraction in the first quarter due to increased imports ahead of tariff changes, it is uncertain whether this influenced the rate drop. Additionally, statements from Federal Reserve officials, such as the possibility of a rate cut by June, may have contributed to the downward pressure on rates.
Given the potential volatility of mortgage rates in May, buyers are advised to consider locking in a rate with the guidance of a loan officer to safeguard against fluctuations.