Mortgage rates have been a hot topic in the housing market over the past 12 months. Compared to the beginning of 2022, rates have risen dramatically. Now they’re dropping, and that has to do with everything happening in the economy.
Nadia Evangelou, Senior Economist and Director of Forecasting at the National Association of Realtors (NAR), explains it well by saying:
“Mortgage rates dropped even further this week as two main factors affecting today’s mortgage market became more favorable. Inflation continued to ease while the Federal Reserve switched to a smaller interest rate hike. As a result, according to Freddie Mac, the 30-year fixed mortgage rate fell to 6.31% from 6.33% the previous week.”
So, what does that mean for homeownership? As mortgage rates fluctuate, they impact purchasing power by impacting the cost of buying a property. Even a small dip can help boost purchasing power. Here’s how it works.
The median-priced home according to the National Association of Realtors (NAR) is $379,100. So, let’s assume you know someone who plans to buy a $400,000 property. If they’re trying to shop at that price point and keep their monthly payment about $2,500-2,600 or below, here’s how their purchasing power can change as mortgage rates move up or down (see chart below). The red shows payments above that threshold and the green indicates a payment within their target range.
This goes to show, even a small quarter-point change in mortgage rates can impact the monthly mortgage payment. That’s why it’s important to follow what the experts are projecting for mortgage rates for the days, months, and the year ahead.
Bottom Line
Mortgage rates are likely to fluctuate depending on what happens with inflation moving forward, but they have dropped slightly in recent weeks. If a 7% rate was too high for you, it might be time to act now while rates have dipped.