Mortgage Rates Hit New Low, But Affordability Challenges Persist

WASHINGTON, D.C. — Mortgage rates fell for a sixth consecutive week, reaching the lowest level in over two months, according to the latest data released Thursday by Freddie Mac. The average rate for a 30-year fixed mortgage dropped to 6.76%, down from 6.85% the previous week.

Mike Miedler, CEO of Century 21 Real Estate, emphasized that affordability remains the primary concern in the housing market despite the recent decrease in mortgage rates. This ongoing issue affects potential buyers’ ability to enter the market.

Sam Khater, chief economist at Freddie Mac, noted, “The drop in mortgage rates, combined with modestly improving inventory, is an encouraging sign for consumers in the market to buy a home.” However, the reality is that affordability issues overshadow these positive indicators.

The average rate on a 15-year fixed mortgage also fell, decreasing to 5.94% from 6.04% last week. Last year, the average stood at 6.26%. With mortgage rates fluctuating, many prospective homebuyers continue to feel the strain on their wallets.

According to the National Association of Realtors (NAR), the median monthly mortgage payment for a $300,000 home has increased by $50 compared to one year ago, now averaging $1,590. NAR reported that pending home sales dropped 5.2% year-over-year, reaching the lowest level on record in January, primarily due to high mortgage rates coupled with elevated home prices.

NAR chief economist Lawrence Yun acknowledged the effects of external factors on housing sales, stating, “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in the upcoming months. However, it’s evident that elevated home prices and higher mortgages strained affordability.”

Despite mortgage rates experiencing a slight respite this week, dropping to 6.84%, experts are cautious about the long-term outlook. The Bankrate lender survey highlighted a downward trend for the average 30-year fixed mortgage rates, which stood at 7.03% just four weeks prior.

In another analysis, the U.S. Department of Housing and Urban Development reported the national median family income for 2024 at $97,800. Alongside this, the median price of an existing home sold in January was noted at $396,900. Calculations indicate that with a 20% down payment and a 6.84% mortgage rate, the monthly payment would be approximately $2,078, which equates to 25% of the typical family’s monthly income.

Lawrence Yun also highlighted the influence of inflation on mortgage rates, noting, “Progress on mortgage rates is only expected to occur when inflation is contained.” The Labor Department reported an inflation rate of 3% in January, raising concerns about upward pressure on mortgage rates.

With political uncertainty looming, thoughts on the future of mortgage rates remain speculative. Vishal Garg, CEO of Better Mortgage, pointed out that potential shifts in federal spending could positively affect mortgage rates. “If the deficit gets pared back, that will be noted by bond traders, and the historically large spread between mortgage rates and 10-year Treasury rates could come down,” Garg stated.