Mortgage rates suddenly drop, and homes are now 5% more affordable

After weeks of steady gains, mortgage rates have fallen rapidly in the past week, meaning homes are suddenly much more affordable.

The 30-year fixed-rate mortgage averaged 5.3% in the week ending July 7, according to the latest data provided by Freddie Mac. That represents a decline of 40 basis points in the past week. One basis point is equal to a hundredth of a percentage point, or in other words, one percent of one percent.

As a result of the drop, economists say home buying is now 5% more affordable than it was just one week ago. Illustrating the difference, the National Association of Realtors said in its Economist’s Outlook blog that the lower rate means homebuyers would save around $100 per month on their mortgage payment.

Freddie Mac said the 30-year fixed rate mortgage now averages 5.30%, down from last week’s average of 5.70%. However, it’s still way higher than the same time last year, when rates were at a record low of just 2.90% on average.

For 15-year fixed-rate mortgages, it said the average rate currently stands at 4.45%, with an average 0.8 point, falling significantly from last week’s 4.83% average. One year ago, 15-year rates were just 2.20%.

Lastly, Freddie Mac said the 5-year hybrid adjustable-rate mortgage averaged at 4.19%, dropping from last week’s 4.50% average. One year prior, the 5-year ARM averaged just 2.52%.

According to Freddie Mac’s chief economist Sam Khater, the declining rates come amid concern over a potential recession in the economy.

“While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” Khater said.