The average 30-year fixed mortgage rate moved slightly lower this week to 6.66%, down from 6.7% a week ago, marking the first time the weekly measure has fallen since Aug. 18.
The dip is little consolation to homebuyers as the average has still more than doubled since this time last year, when it was 2.99%. Higher mortgage rates increase buyers’ monthly payments and lower the price at which they can afford to make a purchase. Some might no longer qualify for a home loan at all.
For example, a Long Islander using a $500,000 mortgage to purchase their home would pay $1,108 more a month toward principal and interest with a 30-year fixed rate of 6.66%, an increase of 53% compared with what they would have paid last year. That excludes the portion of the payment covering taxes and insurance.
U.S. buyers need to spend 38.2% of the median household income on their monthly mortgage payment to buy a median-priced home with a 30-year mortgage and 20% down, Black Knight, a mortgage data and technology company, said last week. That’s the highest the metric has been since December 1984, when the average mortgage rate was 13.2%.
The affordability squeeze on buyers has resulted in a shift in the market, with sellers losing some of the clout they had used to secure escalating record prices for their homes. Buyers could have less competition but are still contending with the lack of available housing supply, which has helped keep the market in sellers’ favor.
Richard Steinberg, founder and chairman of Nationwide Mortgage Bankers in Melville, said refinance activity has dropped but borrowers seeking purchase loans have been steady. He has been surprised to see how many clients are pre-approved but still haven’t found a home.
“We still have a lot of people who want to buy homes,” Steinberg said. “I think people who were locked out of the market for the last two years have an opportunity to get back into the market today. I think they're doing that, and if rates do go down, they can refinance.”
Sam Khater, chief economist for Freddie Mac, attributed the slight decrease in the average long-term mortgage rate this week to “ongoing economic uncertainty.”
Mortgage rates typically move in the same direction as the 10-year U.S. Treasury bond, which is affected by investors' demand for bonds and their inflation expectations. The yield rises when bond prices fall.
Investors will get more information on the state of the economy when the Bureau of Labor Statistics releases its monthly jobs report Friday and the Consumer Price Index on Oct. 13. Persistent inflation has coincided with the doubling of mortgage rates this year.