Mortgage rates have hit yet another record-breaking low, this time falling to 2.88% on 30-year, fixed-rate loans. That’s down from 2.99% last week and 3.60% a year ago. It’s the lowest average rate ever recorded, according to mortgage purchaser Freddie Mac.
“The resilience of the housing market continues as mortgage rates hit another all-time low, giving potential buyers more purchasing power and strengthening demand,” says Sam Khater, chief economist at Freddie Mac.
That “more purchasing power” part might be surprising, especially as home prices rise and incomes fall. But according to the latest data from title insurer First American, it’s true. Low rates increased the average buyer’s budget by around $15,000 in July. If rates were to fall to 2.7%, it would bump overall homebuying power by $32,000.
Research from data and analytics firm Black Knight backs it up, too. According to its latest Mortgage Monitor report, buying power is up 10% year-over-year. Last month, it took just 19.8% of the median monthly income to afford the average mortgage payment–the lowest share in at least four years.
In six states–Arkansas, Iowa, Kentucky, Louisiana, Maryland and West Virginia–affordability actually reached its lowest point in over 25 years.
“Despite eight consecutive years of rising home prices, July’s record-low mortgage rates, which fell below 3% for the first time on July 16, have made purchasing the average-priced home for a median wage earner the most affordable since late 2016,” says Ben Graboske, president at Black Knight. “While record levels of job losses are certainly still weighing on the housing market and broader economy, for those shopping for a home now, buying power has clearly trended up,”
Low rates don’t just help new buyers, though. Existing homeowners can win out, too.
Black Knight’s data shows that at a 2.875% average rate–just a hair shy of this week’s average, 19.5 million homeowners could reduce their interest rate by at least 0.75%. If rates drop to 2.75%, nearly 21 million would fall into the same category.
The average savings for these refinancers would be just under $300 per month.
Fortunately, for buyers and homeowners who haven’t yet pulled the trigger, it seems there’s still time to act–and maybe lots of it. Fannie Mae’s July Housing Forecast predicts rates will remain between 2.8% and 3% through the end of 2021.