Home mortgage rates tick down, but don't expect big relief any time soon

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SALT LAKE CITY — Average U.S. mortgage rates declined for the first time since late March, moving down from 7.22% this time last week to 7.09% for 30-year fixed-rate financing, according to a Thursday report from Freddie Mac.

Rates hit a 10-year peak of 7.79% in October 2023 and rang in the New Year just over 6.6%, but the average interest on a 30-year mortgage has been north of 7% since late last month.

“After a five-week climb, mortgage rates ticked down following a weaker than expected jobs report,” said Sam Khater, Freddie Mac’s chief economist, in a press statement. “An environment where rates continue to hover above 7% impacts both sellers and buyers. Many potential sellers remain hesitant to list their home and part with lower mortgage rates from years prior, adversely impacting supply and keeping house prices elevated. These elevated house prices add to the overall affordability challenges that potential buyers face in this high-rate environment.”

Ongoing high rates come amid the busiest time for the U.S. housing market with over one-third of annual sales occurring during the March-June period, according to Freddie Mac. Last week, Khater predicted significant rate relief was not on the near-term radar but noted there are some signs the homebuyer demographic was adjusting to the current climate.

The National Association of Realtors reports pending home sales in the U.S. grew 3.4% in March and hit a one-year peak.

“March’s Pending Home Sales Index — at 78.2 — marks the best performance in a year, but it still remains in a fairly narrow range over the last 12 months without a measurable breakout,” National Realtor Association chief economist Lawrence Yun said in the report, released late last month. “Meaningful gains will only occur with declining mortgage rates and rising inventory.”

At the start of the year, industry professionals were predicting mortgage rates could move into the high 5% range by the end of the year. But, that was amid a slate of economic indicators, including declining inflation, that was setting the table for expected downward adjustments by the Federal Reserve to its benchmark federal funds rate. While the monetary body sets a guidepost rate for interbank lending, its actions don’t directly impact the rates set by banks for customer lending; however, bank rates tend to follow the Fed’s movements.

Inflation has been inching back up since the start of 2024, and the Fed has backed off earlier indications that it would levy a series of decreases to its federal funds rate and has extended its pause on taking any action on adjusting rates, which have stood at 5.25% to 5.5% since last July and are the highest in over two decades.

Now, Redfin, Fannie Mae, the Mortgage Bankers Association and others believe mortgage rates will still come down this year but are more likely to only decline to around 6.4% to 6.5% by the end of 2024.

So how much of a difference do these incremental changes have on homebuyers’ budgets?

Over the life of the loan, it can add up quickly. On a $500,000 loan with a 3.11% interest rate, the monthly payment would be $2,137. But at 6.92%, the monthly payment would jump to $3,299 — an increase of almost $1,200 per month, or $14,000 a year, per a report from Motley Fool. Over the life of this loan, a homeowner would be paying about $688,000 in total interest.

On a monthly overhead basis, the fiscal pain is more incremental. On a $500,000 loan, for example, a 7% rate would mean a monthly mortgage payment of just over $3,300. At Realtor.com’s projected year-end 6.5% rate, that payment would drop to $3,160 — a difference of only $140, per a report from the Wall Street Journal.