Mortgage rates dropped below 7% as inflation is cooling off. According to Freddie Mac, the 30-year fixed mortgage rate fell to 6.61% from 7.08% the previous week. As a result, owning a home is 5% less expensive than a week ago. If inflation continues to decelerate over the next several months, mortgage rates will likely stabilize below 7%. That's still double the previous year's rate, but it's better than an 8% rate, which is the historical average for the 30-year fixed mortgage. The monthly mortgage payment decreases by $250 when the rate drops by one percentage point.
Nevertheless, many potential first-time home buyers remain priced out due to the higher mortgage rates. At 7%, 1 in 8 renters can afford to buy the median-priced home. In contrast, nearly 1 in 3 renters could afford to buy the median-priced home a year earlier when rates were near 3%. Thus, about 7.9 million renters can no longer afford to buy the typical home, while at the same time, the share of first-time home buyers reached a new record low, according to NAR. While a rate in the 6-7% range may be the new normal, the mortgage rate implications for housing tenure choice are vast and nuanced. In just one year, the median age of renters earning the qualifying income to purchase the typical home rose to 41 from 40.