Prospective homebuyers should be finding it easier to purchase a house as average prices come down and interest rates have seemingly peaked.
According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.47% earlier this week, marking its lowest level since April 2023. Mortgage rates peaked at 7.79% last October.
Thirty-year fixed mortgage rates have remained above 6% since September 2022 in part due to the Federal Reserve raising federal interest rates in order to combat high inflation. Fixed mortgage rates, although not directly tied to federal interest rates, can be influenced by the Federal Reserve's rates.
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Prior to 2022, mortgage rates had not reached 6% since October 2008. Before 2023, the last time mortgage rates had hit 7% was March 2002.
Historically, however, mortgage rates were significantly higher decades ago. Mortgage rates hovered above 10% for much of the 1980s and above 7% in the 1990s. After nearly a decade of mortgage rates hovering around 4% between 2010 and 2020, they plummeted to below 3% in late 2020.
The result caused massive upheaval in the housing market, prompting a huge surge in the price of buying a new home.
From the second quarter of 2020 to the second quarter of 2022, the median sale price of homes surged 38% in the U.S., according to federal data.
Lower interest rates should "pique" the interest of prospective homebuyers
Since the second quarter of 2022, housing prices have relaxed. Prices have declined 7.3% in the last two years, although homes are now still far more expensive than before the pandemic.
However, incomes have greatly increased in recent years as well. Median weekly earnings have increased by 7.2% in the last two years, federal data shows.
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In the last five years, the median sale price for a home has gone up 27.8%, while incomes have increased 24.4%. Combined with higher interest rates compared to before the pandemic, it is slightly more difficult to buy a home now, but conditions have improved a lot over the last two years.
"Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less than favorable employment report and financial market turbulence for an economy that remains on solid footing," said Sam Khater, Freddie Mac's chief economist. "The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move."
Homeowners who purchased their home when mortgage rates were above 7% may also want to start thinking about refinancing.
"This drop in rates is already providing some existing homeowners the opportunity to refinance, with the refinance share of market mortgage applications reaching nearly 42%, the highest since March 2022," said Khater.
