Mortgage rates held mostly steady during the week ending Aug. 22, as mortgage lenders rolled with the punches. The biggest hit came from revised employment numbers hinting at a weaker economy, but that was far from a knockout.
The 30-year fixed-rate mortgage rose 10 basis points, averaging 6.38%. A basis point is one one-hundredth of a percentage point. But daily movements have been mostly downward, and for the past two days, the average rate on a 30-year fixed has been more than one percentage point lower than a year prior.
Looking at the bigger picture, we’re finally starting to see the lower mortgage rates that home buyers — and plenty of refi-curious homeowners — have long been waiting for. Will one percentage point (or more) be enough to get the housing market moving?
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The difference 1% makes
Let’s see how much a slightly lower interest rate could help a hypothetical home buyer. Last year at this time, the average 30-year fixed rate was 7.33%, just under a percentage point higher than our current average of 6.38%.
A buyer who borrowed $300,000 for a 30-year fixed loan a year ago, with an interest rate of 7.33%, would be making monthly principal and interest payments of $2,063. A buyer borrowing the same amount at this week’s average of 6.38% would have monthly payments of $1,873, a savings of almost $200 per month.
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Lower rates vs. higher prices
While rates may be going down, home prices in most markets have continued to rise. In July, the median price of an existing home was $422,600, according to data released this morning by the National Association of Realtors. That’s a 4.2% increase compared to one year ago, when the median price was $405,600 — a sum that’s also nothing to sneeze at.
Do lower mortgage rates help to cancel out that cost difference? Let’s take a look. We’ll assume an 8% down payment, which was the typical first-time home buyer down payment in 2023, per NAR data. A home buyer who borrowed $373,152 — last year’s median price minus 8% — at a 7.33% interest rate would be making monthly principal and interest payments of $2,566. This year’s buyer, with an interest rate of 6.38% and a borrowed sum of $388,792 would face monthly principal and interest payments of $2,427.
This week’s lower average rate just manages to give today’s hypothetical buyer an edge, with a savings of $139 per month despite higher home prices. Lower mortgage interest rates don’t help buyers as much as lower home prices would, but every bit helps.
