After 11 straight months of increases, the average 30-year fixed mortgage rate fell to 6.06% for the week ending January 15, reported Freddie Mac. This is a historic drop from this same time last year when the rate was 7.04%. The drop in mortgage rates is expected to kickstart housing activity, which has been sluggish for the last few years.
Home borrowing rates have reached their lowest level since September 2022. As a consequence, experts are witnessing an increased demand in the housing market. Sam Khater, Freddie Mac’s chief economist, said the acute effects of this drop have already set in.
“The impacts are noticeable, as weekly purchase applications and refinance activity have jumped, underscoring the benefits for both buyers and current owners,” – Sam Khater
As of December, the National Association of Realtors (NAR) issued a press release announcing that the median sales price for existing homes was $405,400. This price represents an overall gradual but consistent rise that has continued for 30 months in a row. The recent one-percentage-point drop in mortgage rates would do a lot to motivate buyers and may relieve a few other financial stresses as well.
A typical homebuyer at that time purchasing a $450,000 home with a 20% down payment would have spent approximately $2,405 per month on principal and interest. That estimate is based on last year’s average interest rate. At today’s rate of 6.06%, those payments would fall to an estimated $2,172. This adjustment would provide you approximately $230 more per month, almost $84,000 over the duration of a typical 30 year mortgage.
Daryl Fairweather, chief economist at Redfin, clarified how we got here in the housing market. Millions more find themselves locked in their homes due to elevated borrowing costs. Further, he pointed out that taken altogether, these conditions alone could have led people to postpone major life milestones. This includes transitions in employment, getting married, and starting a new family.
“People who have felt locked in their homes may be turning down job opportunities, they may be delaying getting married, they may be delaying having a baby, all because they feel trapped in a home that doesn’t meet their needs,” – Daryl Fairweather
The latest new home sales report did just that, showing an increase of 5.1% in December from November. This increase indicates that consumers are beginning to respond favorably to the changing market. Just last month, in late March 2020, President Donald Trump urged the federal government to intervene. To further reduce borrowing costs, he suggested buying an additional $200 billion in mortgage bonds.
As experts such as Susan Wachter of the Wharton School of the University of Pennsylvania note, we are witnessing an unprecedented shift in the housing market. Now, she says, more homeowners are stuck with mortgage rates over 6% than those benefiting from ultra-low rates under 3%.
“It has started; we can already see it in the data,” – Susan Wachter