The largest weekly drop in mortgage rates in four decades provides some relief for would-be homebuyers’ budgets, according to a new report from Redfin.
Last week’s inflation report led to the biggest single-day mortgage-rate drop on record and the largest weekly drop since 1981, with rates declining from 7.08% to 6.61% during the week ending Nov. 17. While this drop is good news for the swelling market, the rate is still more than double the 3.1% rates of a year ago.
The declining rates are bringing some buyers back to the market, with mortgage-purchase applications shooting up 4% from the week before during the week ending Nov. 11. The monthly mortgage payment on the median-asking-price home was $2,430 at the current 6.61% mortgage rate, down 4% from a week earlier ($2,542) and essentially saving buyers about $110.
Redfin says a homebuyer on a $2,500 monthly budget can now afford a $380,750 home with today’s 6.6% rates, giving them $12,000 more purchasing power than they had a week earlier. Last week’s rates would have meant that same buyer could afford a $368,750 home.
However, Redfin said it may be too soon for buyers to react to lower rates. Pending home sales were down 35% year over year during the four weeks ending Nov. 13, the biggest annual decline on record. Additionally, fewer people searched for “homes for sale” on Google than at this time in 2021. Searches during the week ending Nov. 12 were down about 35% from a year earlier.
“The historic drop in mortgage rates is a tick in the ‘good news’ box for the housing market, as lower rates deliver an immediate win for prospective buyers’ pocketbooks,” said Redfin Deputy Chief Economist Taylor Marr. “Until we see more consistent evidence over time of slowing inflation and a bigger, steadier decline in mortgage rates, we expect the impact to be muted. Pending sales and new listings may stop declining, but they aren’t likely to see a major boost until there’s more certainty that the Fed’s efforts to curb inflation are working.”
Marr added, “Serious buyers who need to purchase a home as soon as possible can feel good about pouncing on a home this week, knowing it could cost them upwards of $100 less per month than the same home would’ve cost if they’d signed the deal a week earlier. More casual buyers may want to wait a few more months, as there’s reason to be cautiously optimistic that the worst of inflation and high rates are behind us and monthly payments could come down more.”
Other housing data showed that it’s not just rates seeing a decline. The median home sale price was $357,500 last week, up 3% year over year. The median asking price of newly listed homes was $369,714, down more than 7% from a record high of $399,975 in May.
