Average mortgage rate falls to 6.47%, lowest since May 2023, lowering costs for homebuyers

The average rate for a 30-year fixed mortgage fell to 6.47% this week, its lowest level since May 2023, as investors' bleaker outlook on the economy helped push down rates. 

The average fell just more than a quarter of a percentage point, a significant drop in a single week, from 6.73% last week, according to mortgage giant Freddie Mac.

As rates decrease, Long Island homebuyers will see their potential monthly payments fall compared with earlier this year. The average last year at this time was 6.96%.

But a lower mortgage rate also increases how much buyers can afford to spend and could add to competition for homes. That poses a particular threat on Long Island, where median home prices set records in June. 

The decline in the average rate followed a weaker-than-expected jobs report last week, which caused stock prices to fall and investors to fear a higher possibility of recession. Mortgage rates tend to decline as recession fears grow and increase during inflationary periods. 

"Mortgage rates plunged this week to their lowest level in over a year following the likely overreaction to a less-than-favorable employment report and financial market turbulence for an economy that remains on solid footing," Sam Khater, Freddie Mac's chief economist, said in a statement. "The decline in mortgage rates does increase prospective homebuyers’ purchasing power and should begin to pique their interest in making a move."

Freddie Mac publishes the average on a weekly basis, and its average can lag the latest moves in the market. On Thursday, mortgage rates were starting to move back up, said John Bernardes, vice president of mortgage lending at Rate in Farmingdale, formerly known as Guaranteed Rate.

He said borrowers locked in some of the lowest rates this week on Monday and Tuesday.

Still, they have trended lower over the past month. 

Bernardes said it’s important for borrowers to remember that an individual’s mortgage rate can be affected by a variety of factors, including the size of the loan, the property’s loan-to-value ratio and a person’s credit history. "There’s not one rate," he said.

Aspiring homebuyers waiting for mortgage rates to steadily drop have been disappointed this year. The average rate has ranged from about 6.6% to 7.2% since January. It peaked at 7.79% last October, which was the highest it had been since 2000, according to Freddie Mac.

Increase in refinancing

This is the fifth straight week the average rate has declined, leading to an increase in refinance activity. The Mortgage Bankers Association said Wednesday that its refinance index increased 16% last week compared with the previous week. The index is 59% higher than it was a year ago, when refinance activity was very low. 

A decline in mortgage could help address the imbalance in Long Island’s real estate market, where there are more interested buyers than sellers.

"I think it will have a very positive effect," said Richard Haggerty, CEO of OneKey MLS, the multiple listing service that covers Long Island. "If the market stabilizes and interest rates stay down, that’s going to start to pull some people off the sidelines."

Lower mortgage rates could help convince homeowners who have been putting off a move that now’s the right time to list their home, said Lina Lopes, an associate broker at Douglas Elliman.

"Now, it does make sense to give up that mortgage and get that bigger house if they’re in a tight two-bedroom or three-bedroom with a big family," she said.

Rates will have to fall farther to make a convincing case for those who bought or refinanced their mortgage at a historically low rate in recent years, Bernardes said.

About 8 in 10 mortgage holders had a rate of 5% or less as of last September, according to a report released by Redfin in January.

"The person sitting on their house at 3% — they’re not going to leave their 3% mortgage to either upgrade or downgrade for a 6.5% mortgage," Bernardes said. "That’s part of the problem and why more people haven’t listed."

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.