Mortgage Rate Drop Could Save Americans $20,000 on Housing

Homebuyers could save thousands on their mortgage payments as rates fell more than they have in 18 months, according to the Mortgage Bankers Association (MBA). The 30-year fixed mortgage rate dropped by 0.25 percent.

The drop in mortgage rates comes as Americans face record-high borrowing costs, low housing supply, and other economic obstacles to homeownership.

The lower rate means someone buying a house at the current median price of $416,000 at a 7.61 percent rate would save about $20,000 over a 30-year mortgage compared to the 7.86 percent mortgage rate from last week, assuming a 20 percent down payment, according to a mortgage calculator.

The 30-year fixed mortgage rate declined by 0.25 percent from 7.86 percent to 7.61 percent for the week ending November 3, MBA's deputy chief economist, Joel Kan, said in a statement. It is the second drop in a week, according to the association, as mortgage applications jumped by 2.5 percent after weeks of decreases.

Rates dropped in part because the Federal Reserve maintained interest rates at 5.25 to 5.5 percent. The Treasury Department also issued less debt than expected, and the labor market has tightened, Kan said.

Mortgage rates have hovered near 8 percent over the last few weeks, the highest they have been since the turn of the century. The elevated cost of borrowing for a home has risen at a time when the central bank has aggressively hiked interest rates to a two-decade high to battle soaring inflation. The policy moves have pushed up the cost of capital, which in turn have made securing a loan to buy a house more expensive.

The rates are still higher than they were from a year ago, with the 30-year fixed rate up nearly 0.5 percent 12 months to date, according to MBA data.

The high mortgage rates have led to sellers of previously owned homes to hold up as they prefer to hold on to their low rates on their current mortgages, rather than risk entering a market of elevated borrowing costs. This has stifled the supply of homes available for sale amid an environment of low inventory, pushing up the price of homes, analysts have said.

Experts said the recent drop in rates was unlikely to make a huge dent for buyers.

"Affordability is still tough for most folks and supply is still low," Saad Munir, a Boston-based real estate broker, told Newsweek.

A true swing in buyers' favor will only happen if rates drop significantly, Munir added, but that was unlikely to happen for at least another year. Another key factor is the market saw more supply of homes for sale.

"Although, deals are definitely there for those folks that can weather the storm for a year or two before they refinance. Never a perfect situation in real estate is the honest truth," Munir said.

Chen Zhao, Redfin head of economic research, told Newsweek that rates were still above 7.50 percent and unlikely to spur significant demand.

"It's not gonna have that big of an impact and it will take awhile," she said. "There's just so much volatility in mortgage rates right now...that causes buyers to step back because they...are afraid to commit."

Meanwhile, the cost of financing a mortgage is also at a record high. Last week, realtor.com revealed that the monthly cost of financing 80 percent of a home has increased by $166 a month compared to last year. To buy a house, buyers need an extra $6,000 of income now, to at least $120,000 a year to afford a home.

But recent data shows that buyers have been navigating the new normal of high rates and high prices. They are choosing to acquire new homes where builders may be more willing to negotiate on prices and assist in shaving off points on mortgage rates.

In September, new single-family homes sales jumped more than 12 percent compared to the previous month and rose by nearly a third relative to the same time a year ago, according to data from by the Census Bureau and the Department of Housing and Urban Development.

Update 11/8/23, 4:20 p.m. ET: This story has been updated with additional information.

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