Mortgage Rate Dip
Although mortgage rates have hit their highest levels since 2008, we have seen a dip in the rates over the last few weeks. This dip is mostly related to the Federal Reserve raising interest rates into a slowing economy. There is a lot of talk about a recession coming in the coming months, which is leading to the decline in borrowing costs over the longer term. As we have seen and heard about, mortgage rates have increased at a record pace this year, so some sort of mortgage rate dip is something that a lot of buyers can get excited about. Here is why a mortgage rate dip can spark an uptick in real estate activity over the following months.
Mortgage Rate Market
According to Freddie Mac, the 30-year mortgage rate has been on a subtle decline for a few weeks now. With mortgage rates coming down from 5.8% to 5.3% in the past two weeks, we should see a slight uptick in real estate activity. A half percent drop in mortgage rates can save you about 7-10% a month on your payment. As a buyer, being able to save on your monthly payment will add up to thousands, if not hundred of thousands of dollars, over the mortgage.
Why is this mortgage rate dip such a benefit to homebuyers? Well, as explained by senior economists, homebuying has became at least 5% more affordable over the past week. Here is what Nadia Evangelou, senior economist at NAR (National Association of Realtors), has to say about the mortgage rate dip:
“According to Freddie Mac, the 30-year fixed mortgage rate dropped sharply by 40 basis points to 5.3 percent. . . . As a result, home buying is about 5 percent more affordable than a week ago. This translates to about $100 less every month on a mortgage payment.”
What This Means For Buyers
Instant savings comes from a drop in mortgage rates, so this is wonderful news to buyers. When rates go up, which we have seen for most of the calendar year, they impact affordability. With higher rates, you pay more in your monthly payment towards interest instead of principal. So, this leads to the inverse being true. If you see a decrease in mortgage rates, you will see a decrease in monthly payment. Remember, every one percent saves you about 10-20% each month on your payment.
Looking at the chart displayed below, you can see how a half-point, or even a quarter-point change can impact you monthly mortgage payment. It is clear to see how your average mortgage payment is impacted by mortgage rates. Contrarily, these same charts were showing what your payment would be with 4% mortgage rates just six months ago. Now, we are talking about what your payment will be at with 6% mortgage rates.