Average mortgage rate eclipses 7% for first time in 2024

Long Island homebuyers who were hoping to see mortgage rates fall this spring are seeing just the opposite. 

The average U.S. rate for a 30-year fixed mortgage rose to 7.1% during the week ending Thursday, surpassing 7% for the first time since early December, according to mortgage giant Freddie Mac. 

The average jumped nearly a quarter-point this week, from 6.88%, after the U.S. Labor Department's inflation report showed prices rising faster than expected in March.

After the pace of inflation slowed last year, some homebuyers had expected the Federal Reserve to cut its benchmark interest rate several times in the first half of 2024 and that mortgage rates could fall. Borrowing costs tend to decline as the rate of inflation drops.

“There were a lot of mortgage professionals, myself included, that were hoping interest rates would decrease,” said Andrew Russell, founder and owner of RCG Mortgage in Hauppauge. “Nonetheless, reports keep coming out that inflation has not been tackled, and the Fed cutting the rates is going to keep being kicked downstream.”

Russell said he’s still seeing plenty of clients in his office interested in buying homes who have accepted that rates aren’t going to fall dramatically this year.

“A lot of people have come to terms that this is what it is,” he said.

The average rate had hovered between 6.5% and 7% through the first quarter of the year before its recent turn upward.

The 30-year fixed rate peaked in late October at 7.79%, according to Freddie Mac. Rates rose steadily throughout 2022 and 2023 after years when they had lingered near historic lows. Three years ago, the average long-term rate was about 3%.

“As rates trend higher, potential homebuyers are deciding whether to buy before rates rise even more or hold off in hopes of decreases later in the year,” Sam Khater, chief economist at Freddie Mac, said in a statement. “Last week, purchase applications rose modestly, but it remains unclear how many homebuyers can withstand increasing rates in the future.”

At today's average rate, a Long Island homebuyer purchasing a home with a $500,000 mortgage would pay $3,360 a month for the principal and interest portion of their loans, excluding taxes and insurance. That's about $240 more than the same monthly payment would have cost at this time last year when the average long-term fixed mortgage rate was 6.39%, according to Bankrate's mortgage calculator.

When the average rate was 3%, the principal and interest portion of a mortgage payment only cost $2,108.

Steve Probst, a loan officer at Fairway Independent Mortgage Corp. in Freeport, said business had picked up in the beginning of the year but has slowed as rates crept up. He encourages clients to be careful before giving up their search and missing out on a chance to build equity in a home.

“Fear is paralyzing, and the fear of higher payments long term creates a lot of lost opportunity,” Probst said. “Rates will come down. It’s not a matter of if. It’s a matter of when. The lost opportunity is that right now, with higher rates, there’s going to be less competition looking at homes.”

Higher rates contributed to fewer home sales on Long Island in March. But they've yet to put a dent into the multiyear boom in local home prices. The median price of a home in Nassau County last month was $730,000, or 8.6% higher than in March 2023, according to OneKey MLS.

The median Suffolk County home sold for $615,000, which was 13.9% above the same figure from a year earlier. 

Local real estate agents say a shortage of homes on the market has pushed prices higher. The number of single-family homes for sale dropped 20% over the past year, and there are less than half as many homes on the market now compared to before the pandemic. 

Cory Knopf, an associate broker at Compass in Oceanside, said while a drop in rates could lower buyers' monthly payments, it could make homebuying even more competitive on Long Island. 

“The only way [lower rates] can help is to get people to sell,” she said. But Knopf said she doubts enough people will decide to sell at the same time to affect prices. 

If rates were to fall, “it's just going to get more aggressive because there'll be more buyers able to spend more — the prices will still go up a little bit when interest rates go down. It will increase inventory but not to the point of changing pricing,” she said.

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.