Mortgage rates have seen a substantial drop this week, falling to 7.5% – the largest decline since last year. However, for those burdened by the cost of buying a home, this decrease may not make a significant impact.
According to recent data from Freddie Mac, mortgage rates closely followed the downward trend of 10-year Treasury yields. The average rate for a 30-year fixed mortgage now stands at 7.5%, approximately 0.25% lower than the previous week’s average rate of 7.76%.
Several factors contributed to this decline, including Treasury auctions and unexpectedly moderate economic data. These occurrences caused the Treasury yield to decrease towards the end of last week. It is worth noting that although mortgage rates typically reflect changes in the 10-year yield, the gap between the two has been wider-than-usual throughout this year.
This latest drop in rates represents the most significant decrease since November 2022. However, its impact on demand may not be substantial. While the new weekly rate is the lowest recorded since early October, it only partially offsets the considerable climb in mortgage rates during the second half of this year.
It is essential to consider that this decline takes place during a typically sluggish period for the housing market. Moreover, it may not alleviate the challenges posed by rising home prices and mortgage rates that remain considerably higher compared to one year ago. For instance, a buyer purchasing a $400,000 home at this week’s average rate would save approximately $60 per month compared to a buyer who secured a mortgage at the prior week’s rate.
Home Affordability Reaches Record Low for First-Time Buyers
The cost of owning a home continues to rise, making it increasingly difficult for first-time buyers to enter the market. According to the National Association of Realtors, home affordability has reached its lowest level on record in the third quarter. The majority of metropolitan areas saw a rise in single-family home prices during this time.
Household debt is also on the rise, driven by mortgage, credit card, and student loan balances. This has further strained consumers who are already grappling with the high cost of living. Unless mortgage rates see a significant decrease, the housing market is expected to remain stagnant, according to Sam Khater, Freddie Mac’s chief economist.
However, there is a glimmer of hope in the form of a decline in mortgage rates. The Mortgage Bankers Association reported a significant drop in its mortgage rate gauge, leading to a 3% increase in home purchase loan applications. This comes as a slight relief after application volume reached a 28-year low just a week ago.
Overall, while the slight decrease in mortgage rates may offer some respite, it is unlikely to have a substantial impact on high home costs. The housing market remains challenging for many potential buyers, especially those entering the market for the first time.