Mortgage rates held mostly steady during the week ending Aug. 22, as mortgage lenders rolled with the punches. The biggest hit came from revised employment numbers hinting at a weaker economy, but that was far from a knockout.
The 30-year fixed-rate mortgage rose 10 basis points, averaging 6.38%. A basis point is one one-hundredth of a percentage point. But daily movements have been mostly downward, and for the past two days, the average rate on a 30-year fixed has been more than one percentage point lower than a year prior.
Looking at the bigger picture, we’re finally starting to see the lower mortgage rates that home buyers — and plenty of refi-curious homeowners — have long been waiting for. Will one percentage point (or more) be enough to get the housing market moving?
The difference 1% makes
Let’s see how much a slightly lower interest rate could help a hypothetical home buyer. Last year at this time, 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 for a 30-year fixed loan a year ago, with an interest rate of 7.33%, would be making monthly principal and interest payments of $2,063. A buyer borrowing the same amount at this week’s average of 6.38% would have monthly payments of $1,873, a savings of almost $200 per month.
Lower rates vs. higher prices
While rates may be going down, home prices in most markets have continued to rise. In July, the median price of an existing home was $422,600, according to data released this morning by the National Association of Realtors. That’s a 4.2% increase compared to one year ago, when the median price was $405,600 — a sum that’s also nothing to sneeze at.
Do lower mortgage rates help to cancel out that cost difference? Let’s take a look. We’ll assume an 8% down payment, which was the typical first-time home buyer down payment in 2023, per NAR data. A home buyer who borrowed $373,152 — last year’s median price minus 8% — at a 7.33% interest rate would be making monthly principal and interest payments of $2,566. This year’s buyer, with an interest rate of 6.38% and a borrowed sum of $388,792 would face monthly principal and interest payments of $2,427.
This week’s lower average rate just manages to give today’s hypothetical buyer an edge, with a savings of $139 per month despite higher home prices. Lower mortgage interest rates don’t help buyers as much as lower home prices would, but every bit helps.
More From NerdWalletCompare Current Mortgage Rates9 Ways to Deal With High Mortgage RatesHow Much House Can I Afford?
Kate Wood writes for NerdWallet. Email: kwood@nerdwallet.com.
The article Weekly Mortgage Rates Remaining Low Could Offset Higher Prices originally appeared on NerdWallet.
