Average mortgage rate drops to 6.2% — lowest since February 2023
Long Island house hunters are starting to gain greater buying power, as the average 30-year fixed mortgage rate fell this week to its lowest point since February 2023.
The average rate was 6.2% during the week ending Thursday, according to mortgage giant Freddie Mac, dropping from 6.35% last week. The average has fallen from nearly 7% in early July, as expectations for inflation have cooled.
A year ago at this time, the average rate was 7.18%.
A slower pace of inflation has helped rates fall. Consumer prices rose 2.5% in August compared with a year earlier, which was the slowest 12-month pace for inflation in three years, according to a report Wednesday from the Bureau of Labor Statistics. That report solidified expectations that the Federal Reserve will cut its benchmark interest rate at its Sept. 17-18 meeting.
WHAT TO KNOW
- The average 30-year fixed mortgage rate was 6.2% this week, according to mortgage giant Freddie Mac.
- A year ago at this time, the average was nearly a full percentage point higher, at 7.18%.
- While house hunters will have more buying power, lower mortgage rates could also increase competition, pushing up home prices.
Mortgage rates are not directly influenced by the Fed's key rate. They typically move in the same direction as the yield on 10-year U.S. Treasury notes, which hit its lowest point of the year this week.
"Rates continue to soften due to incoming economic data that is more sedate," Freddie Mac chief economist Sam Khater said in a statement. "But despite the improving mortgage rate environment, prospective buyers remain on the sidelines, as they negotiate a combination of high house prices and persistent supply shortages."
Mortgage rates above 6% might not be adequate to entice buyers — or enough to convince homeowners that it's the right time to upgrade or downsize.
That's because homeowners looking at listings face the prospect of limited options and heavy competition for homes.
At the end of June, only around 5,000 houses and condos were on the market on Long Island, excluding the Hamptons and North Fork. Five years earlier, before the pandemic led to a surge in demand for suburban homes, that number was around 14,000, according to data from appraisal firm Miller Samuel.
The drop in mortgage rates has led to slightly more interest from homebuyers but rates will likely need to drop below 6% to entice homeowners to test the market, said Stephen Probst, a loan officer at Fairway Independent Mortgage Corp. in Freeport.
"I believe we're still in that stall period," Probst said. "... There's not enough inventory to downsize to and [homeowners] don't want to be abused when they go to purchase. It makes it difficult for those move-down buyers and people say, 'Ah, I'll just stay where I am.' "
Buyers stand to benefit from lower mortgage rates through their monthly housing payments.
A person buying a house for $600,000 and putting 20% down would pay $3,193 a month in principal and interest with a 30-year fixed loan at 7%. That excludes the cost of taxes and insurance, which varies by location.
With the same loan at 6.2%, the monthly payment drops by $253 to $2,940, according to Bankrate's mortgage calculator.
That savings could entice some homebuyers who have been waiting for rates to drop, said Jovanni Ortiz, a real estate agent at Douglas Elliman in Rockville Centre.
"The rates are coming down, even if it’s not huge jumps, it’s significant," Ortiz said. "It does make an impact on what their monthly mortgage payments would be, so they’re interested."
Unfortunately for homebuyers, if lower mortgage rates make purchasing feasible for more people that could yield more competition, pushing up prices.
The median price of a single-family home in Nassau County was a record $810,000 in July, according to OneKey MLS. The median in Suffolk was $660,000, which was slightly below the all-time high for the county.
"People get excited because they hear their rates are coming down," Ortiz said. "... We've seen houses selling for over the asking price regularly for quite some time. Does that [price] number go even higher? If that is the situation, are they really saving any money?"
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