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Mortgage Interest Rates dropped to 6.49% Amid Falling Inflation

August 26, 2024

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National mortgage backer Freddie Mac revealed that average U.S. mortgage payments are down this week for the first time in four years due to falling inflation. This shift presents a potential opportunity for those interested in buying investment property, as lower mortgage payments can improve cash flow and affordability. Up to this point, the reduction in inflation had not been felt in the housing sector.

Median Mortgage Payments Decrease

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According to Redfin data published Thursday, median mortgage payments decreased by one-tenth of a percent to $2,587 as of August 18. This figure is based on a 6.49 percent interest rate.

Decline in Mortgage Rates Over the Past Year

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Mortgage rates have declined slowly over the past year from a high in October 2023 of 7.8 percent. This figure represented a 20-year high interest rate.

Comments from Mortgage Bankers Association

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Mortgage Bankers Association CEO Bob Broeksmit said, “The late summer decline in mortgage rates continued last week, with the 30-year fixed rate dropping to 6.5 percent– the lowest since May 2023.”

Mortgage Applications Decline Despite Lower Rates

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Mortgage applications were down in the past week despite the modest relief in the interest rate and lower monthly mortgage payments. Continued relatively high real estate prices explain this.

Prospective Borrowers’ Expectations

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Broeksmit explained, “Applications to refinance and buy a home both fell last week, which may indicate that some prospective borrowers are hoping that rates decrease even more before they decide to apply.”

Drop in Pending Home Sales

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Pending home sales decreased 5.3 percent over the past year. This is the most significant drop in nine months, except for four weeks in July and early August.

Decline in Mortgage-Purchase Applications

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Mortgage-purchase applications are also down eight percent in a year’s time.

Housing Sector Inflation Trends

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Housing sector inflation has been trending down since its high in 2023. Inflation in the housing sector often lags overall inflation.

Owner’s Equivalent Rent Decrease

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The owner’s equivalent rent increased over 8.1 percent in April and is back down to 5.3 percent as of July 2024.

Steady Decline in Rent and Shelter Costs

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Both owners’ equivalent rent and rent of shelter costs have been steadily declining, outpacing inflation, which has been difficult for the Federal Reserve to control. It has hovered higher than desired, at nearly three percent for a year or more despite steady rate hikes with no cuts yet. A rate cut is expected in September.

Housing Costs Remain High Despite Lower Inflation

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Despite the reduction in inflation, lower interest rates, and median mortgage payments, housing costs are still on the uptick, representing a 3.6 percent price increase, and are still near record highs, according to Redfin data.

Decrease in Median Sale Price of Homes

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The U.S. Census Bureau and Department of Housing and Urban Development report that the median sale price of a home in the U.S. fell to $412,300 from $426,800 in the second quarter of 2024.

Cost of Homes Remains High Compared to Pre-Pandemic Levels

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While the median monthly mortgage has modestly decreased for the first time in four years, the overall cost of homes is still far above pre-pandemic levels. Houses cost up to 25 percent more than at the start of 2020.