Mortgage rates plunge to lowest level in over a year amid recession fears

Mortgage rates, which are influenced by market expectations, have decreased over the past week due to anticipation that the Federal Reserve may cut rates as the economy slows.

The 30-year mortgage rate initially dropped after the Fed hinted at a possible rate cut in September on Wednesday and fell further following Friday's jobs report. As of Thursday, the average rate for a 30-year mortgage was 6.48%, the lowest since May 2023, according to data from Intercontinental Exchange.

On Monday, the 30-year fixed-rate mortgage declined further to 6.34%, the lowest level since April 2023, according to Mortgage News Daily, which surveys lenders daily.

“We could see additional declines in interest rates if economic data continues to support a weakening economy, but today's data didn’t provide further confirmation,” Ralph McLaughlin, a senior economist at Realtor.com, told MarketWatch. July’s rebound in the service sector countered recession concerns.

(Realtor.com is managed by News Corp subsidiary Move Inc., and MarketWatch is a division of Dow Jones, also a News Corp subsidiary.)

For many buyers, the drop in rates is a significant development, especially given the recent decline in housing affordability. In May, housing affordability fell 7% from the previous year, according to the Federal Reserve Bank of Atlanta's Home Ownership Affordability Monitor.

Purchasing a median-priced home of $383,000 in May would have required 44% of an annual salary of $81,000, which is deemed a financial strain by the Atlanta Fed.

To afford a home with a median listing price of about $440,000 in July comfortably, a buyer would need an annual income of $90,000, according to Realtor.com calculations. This assumes the buyer's monthly housing payment is about a third of their income, with monthly costs around $2,500, based on a 20% down payment, a 30-year rate of 6.3%, and including taxes and insurance.

“An economic downturn isn’t necessarily negative for buyers,” McLaughlin noted, referencing a 2023 survey of site visitors.

Approximately 36% of buyers indicated that a recession would make them somewhat more likely to purchase a home, with this figure rising to 42% among first-time buyers and 32% among repeat buyers.