Mortgage Rates Hit Biggest Drop in a Year – Is This an Opportunity for Homebuyers?
The housing market has always been a sensitive issue, especially for those who are planning to buy their dream home. The biggest problem these days is the rising mortgage rates. But now a big news has come out which is like a relief for buyers. Mortgage rates have seen the biggest single-day drop in more than a year, which can benefit people in both monthly payments and long-term costs.
How much are the mortgage rates now?
This week mortgage rates for 30-year fixed loans are down to 6.5%, slightly lower than last week’s 6.56%. While this may be a small drop, its impact on monthly payments is significant.
If you purchase a median-priced home valued at $439,450 and make a 20% down payment, your monthly payment would be approximately $2,222 at today’s rates. Last week this payment was $2,233. This means buyers save $14 per month and earn $168 over a year.
In October 2023, when mortgage rates were at peak (7.79%), buyers would have paid $2,528 monthly for this home. This means that today’s buyers are saving $306 monthly compared to buyers of that time, which amounts to $3,816 in a year.
How much can be saved with FHA loans?
Not all buyers can afford 20% down payment, so FHA loans are a popular choice in which only 3.5% down payment has to be paid.
At today’s rate of 6.5%, if a borrower buys a home worth $439,450 with an FHA loan, then his monthly payment will be approximately $2,680. Last week it was $2,697, meaning a saving of $16. At the October 2023 high rate of 7.79%, this payment would have been $3,060. That means buyers are still able to save around $380 every month.
Long-Term Impact of Mortgage Rates
The biggest difference is visible when you look at the loan tenure of 30 years.
If a buyer today buys a house worth $439,450 with 20% down payment at 6.5% rate, then he will have to pay a total of $798,840. If the same house is bought at the October 2023 peak rate of 7.79%, then its cost would be $913,320. Meaning buyers are saving a total of $114,480 during a home loan.
There is an even bigger difference in the case of an FHA loan. At today’s rate, the buyer will have to pay $964,946, while in October 2023 this loan would cost $1,101,681. That means long-term savings of $136,735 are possible for buyers.
Why did mortgage rates fall?
According to Mortgage News Daily, the average rate of a 30-year fixed mortgage has fallen 16 basis points to 6.29%. This is the lowest rate since October 3 and also the biggest one-day drop in the last one year.
The decline comes after a weaker-than-expected jobs report that showed employment data was not as strong as the market was expecting. This caused the bond market to react and mortgage rates to come down.
Matt Graham, COO of Mortgage News Daily, said that “the jobs report is always the biggest factor in rates, and it was the same this time too.” According to him, many lenders are now starting to give quotes in the range of around 5%.
Impact on Buyers and Housing Market
The direct impact of falling rates can be a big relief for buyers. Suppose you are thinking of buying a house worth $450,000 and make a 20% down payment on it. If the mortgage rate was 7%, you would have to pay approximately $2,395 every month. But now the rate has come down to 6.29%, which means your monthly bill will fall to $2,226. This means that a saving of $169 every month will remain in your pocket. That may seem small, but for many buyers, the difference may be the deciding factor in whether or not they qualify.
Homebuilder stocks also reacted positively. Stocks of big names like DR Horton, Lennar and Pulte rose as much as 3%. Housing ETF ITB also grew 13% in the past month.
But there is still a big challenge – high home prices. Affordability is still a concern even as rates have fallen, and mortgage demand hasn’t come back as strong yet. According to the Mortgage Bankers Association, applications have fallen 6.6% in the past four weeks.
Danielle Hale, Chief Economist at Realtor.com, says “buyers are struggling with affordability issues, sellers are facing more competition, and builders are worried about low demand.”
Will mortgage rates fall further?
Market experts believe that if mortgage rates go below 5%, only then could a major shift come for buyers. Currently prices are high and there is uncertainty in the job market, so many buyers are in wait-and-watch mode. But the decline now is a positive sign that may make the housing market a little active in the next few months.
Disclaimer:
This article is for informational purposes only. It is important to consult your financial advisor before taking a home loan or buying a property. Rates and market conditions may change with time.
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