Average long-term U.S. mortgage rate falls to 6.67%, lowest level since June

The average U.S. rate on a 30-year fixed mortgage fell to 6.67% this week, its lowest level since June, reducing Long Islanders' costs to buy a home. 

The average fell from 6.95% last week, dropping more than a quarter-point, for the week ending Dec. 21, according to mortgage giant Freddie Mac. It was the largest single-week drop since November 2022.

The weekly gauge of the most popular home loan climbed to its highest level since 2000 in late October, at 7.79%, before falling in each of the next eight weeks. A year ago, the average was 6.27%. Two years ago, it was 3.05%.

Mortgage rates declined at a faster pace this week following Federal Reserve Chair Jerome Powell's Dec. 13 comments that the Fed is likely done raising its benchmark interest rate in its campaign to control inflation. Fed policymakers also projected last week that the central bank could cut the key rate three times next year, according to Bankrate. 

While the Fed does not set mortgage rates, its monetary policy affects the yield on 10-year Treasurys, which lenders use to set borrowing rates. The yield on those government notes fell to its lowest level since July this week.

"The 30-year fixed-rate mortgage remained below seven percent for the second week in a row, a welcome downward trend after 17 consecutive weeks above seven percent," Sam Khater, chief economist at Freddie Mac, said in a statement. "Lower rates are bringing potential homebuyers who were previously waiting on the sidelines back into the market and builders already are starting to feel the positive effects."

The plunge in rates means those looking to purchase a home on Long Island have greater buying power and stand to pay less in monthly interest costs than they would have just weeks ago. A homebuyer taking out a $500,000 mortgage would pay $3,216 a month in principal and interest, or about $379 less than they would have when the average peaked at 7.79% in late October. That excludes taxes and insurance costs.

Lower rates have led to more inquiries and mortgage applications in recent weeks at a typically slow time of year for the industry, said Gregory Topal, CEO of Reliant Home Funding, a Melville-based direct lender, which specializes in FHA mortgages.

With rates falling, homebuyers can be upbeat, Topal said: "It's a relief and hopeful for 2024."

Even as mortgage rates climbed this year, Long Island home prices continued to rise. The median sale price in Suffolk County last month matched a record $600,000, increasing 10.1% from November 2022, according to OneKey MLS. In Nassau County, the median increased 6.8% to $710,000 in November compared with the previous year. 

Higher mortgage rates have had an effect on the number of sales and homes on the market. There were nearly 20% fewer closings on Long Island in November than in the same month a year ago. 

“Many of the factors that made 2023 the least affordable year for homebuying on record are easing,” Redfin senior economist Elijah de la Campa, wrote in a report released Thursday that described how few homes are affordable for households earning the U.S. median income. “… We’ll likely see a jump in home purchases in the new year as buyers take advantage of lower mortgage rates and more listings after the holidays.” 

The number of listings on Long Island at the end of November was down almost 23% compared with a year earlier. Nassau County had the fewest homes on the market in at least 35 years. 

Topal said he believes if rates can sink below 6%, homeowners who might have delayed moving will be more motivated to sell.

"There's still buyer demand. The missing piece of this puzzle is sellers," Topal said. "As these rates tick down, the sellers are going to creep in and start being open to selling their houses, which will create a better dynamic to this market."

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.