Sustained low weekly mortgage rates could offset higher prices | Lifestyle

Mortgage rates remained broadly stable for the week ending August 22 as mortgage lenders took the hits. The biggest hit came from revised jobs numbers that pointed to a weaker economy, but that was far from a knockout.

The 30-year fixed-rate mortgage rose 10 basis points to average 6.38 percent. A basis point is one-hundredth of a percentage point. However, daily movements were mostly downward, and over the past two days the average rate on a 30-year fixed-rate mortgage was more than a percentage point lower than a year ago.

Looking at the bigger picture, we're finally seeing the lower mortgage rates that homebuyers – and many homeowners interested in refinancing – have long been waiting for. Will a percentage point (or more) be enough to jumpstart the housing market?

The difference 1% makes

Let's see how much a slightly lower interest rate could help a hypothetical homebuyer. This time last year, 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 a year ago on a 30-year fixed loan at a 7.33% interest rate would have to pay $2,063 per month in principal and interest. A buyer who borrows the same amount at the weekly average rate of 6.38% would have to pay $1,873 per month, saving nearly $200 per month.

Lower rates vs. higher prices

Even as interest rates fall, home prices have continued to rise in most markets. In July, the median price for an existing home was $422,600, according to data from the National Association of Realtors released this morning. That's a 4.2 percent increase from a year ago, when the median price was $405,600 — a sum that's also nothing to sneeze at.

Do lower mortgage rates help offset that cost difference? Let's take a look. We're assuming an 8% down payment, which was the typical down payment for first-time home buyers in 2023, according to NAR data. A homebuyer who borrowed $373,152 — last year's median price minus 8% — at a 7.33% interest rate would make monthly principal and interest payments of $2,566. This year's buyer with a 6.38% interest rate and borrowing $388,792 would have to make monthly principal and interest payments of $2,427.

This week's lower average interest rate just gives today's hypothetical buyer a leg up, saving $139 per month despite higher home prices. Lower mortgage rates don't help buyers as much as lower home prices, but every bit helps.

The article “Persistently low weekly mortgage rates could offset higher prices” originally appeared on NerdWallet.