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The 30-year fixed-rate mortgage fell to a 6.77% average this week, its lowest level since mid-March and the biggest weekly drop in basis points since May, Freddie Mac reports.
The drop in rates so far has not prompted a flood of home buyers into the market. The Mortgage Bankers Association reported this week that the number of people applying for a loan to purchase a home continues to fall. Purchase application demand is still about 5% below the spring, when rates were at about the same averages.
“This is not uncommon: Sometimes as rates decline, demand weakens, and the apparent paradox is driven by buyers making sure rates don’t decline further before they decide to purchase,” says Sam Khater, Freddie Mac’s chief economist.
Buyers may be hesitating for other reasons, too. “Home sales activity tends to slow in the middle of the summer,” says Lisa Sturtevant, chief economist at Bright MLS. “But affordability is a bigger obstacle than the hot weather. Home prices have hit record highs in many markets which will keep some buyers out of the market.”
At this week’s 6.77% rate average, home buyers with a 20% down payment likely would have a $2,080 monthly mortgage payment on a $400,000 home, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. For a 10% down payment, they would have a monthly mortgage payment of $2,340. The lower rates this week can “help home buyers with one part of the housing affordability equation,” Lautz says.
Indeed, “mortgage rates are headed in the right direction and the economy remains resilient, two positive incremental signs for the housing market,” adds Khater. The latest drop in rates also follows a more favorable inflation report this week as well as growing expectations that the Federal Reserve will begin to cut its key benchmark rate in September.
As such, if mortgage rates continue to head down further over the coming months, more buyers and sellers likely could re-enter the market and “we could see a market that is closer to balanced than it has been in years,” Sturtevant says.
Freddie Mac reports the following national averages with mortgage rates for the week ending July 18:
- 30-year fixed-rate mortgages: averaged 6.77%, dropping from last week’s 6.89% average. A year ago, 30-year rates averaged 6.78%.
- 15-year fixed-rate mortgages: averaged 6.05%, falling from last week’s 6.17% average. Last year at this time, 15-year rates averaged 6.06%.
