Weekly Mortgage Rates Remaining Low Could Offset Higher Prices

Mortgage rates remained relatively stable for the week ending Aug. 22, with mortgage lenders adapting to market fluctuations. The revised employment figures indicating a weaker economy were a setback, but not a decisive blow.

The average rate for a 30-year fixed-rate mortgage increased by 10 basis points to 6.38%. Despite this uptick, daily rate movements have mostly trended downwards. Currently, the average rate for a 30-year fixed mortgage is over one percentage point lower than it was a year ago.

On a broader scale, we are finally witnessing the anticipated decrease in mortgage rates that potential homebuyers and existing homeowners looking to refinance have been waiting for. Will this one percentage point (or more) drop be sufficient to stimulate the housing market?

Let’s consider how a slightly lower interest rate could benefit a hypothetical homebuyer. Last year, the average 30-year fixed rate was 7.33%, just under a percentage point higher than the current average of 6.38%.

A buyer who took out a $300,000 loan for a 30-year fixed mortgage a year ago at 7.33% would be paying $2,063 per month in principal and interest. In comparison, a buyer borrowing the same amount at the current average rate of 6.38% would have monthly payments of $1,873, saving almost $200 monthly.

While mortgage rates are decreasing, home prices in many markets are on the rise. In July, the median price of an existing home was $422,600, a 4.2% increase from a year ago when the median price was $405,600.

Do lower mortgage rates offset the increasing cost of homes? Let’s analyze. Assuming an 8% down payment, which was the typical first-time homebuyer down payment in 2023 according to NAR data, a buyer who borrowed $373,152 (last year’s median price minus 8%) at a 7.33% interest rate would have monthly payments of $2,566. In comparison, a buyer this year with a 6.38% interest rate and a borrowed amount of $388,792 would have monthly payments of $2,427.