Mortgage rates have hit a 15-month low — but will they go anywhere near 3%?
San Francisco Chronicle By Jessica Roy
Potential California homebuyers have been disheartened by the meteoric rise in interest rates over the past two years.
But as of Thursday, the average 30-year fixed-rate mortgage was available at 6.47% — nowhere near the low 2’s and high 3’s seen during the height of the pandemic, but down substantially from a high of 7.79% in October 2023. The last time mortgage rates were this low was in May 2023.
“In the last few days, we’ve seen mortgage rates come down pretty dramatically,” said Jessica Lautz, the National Association of Realtors’ deputy chief economist and vice president of research. These rates represent “the best interest rates that consumers have seen in the past year.”
She said lenders are likely beginning to drop them in anticipation of a Fed rate cut in September.
RELATED: What a Fed rate cut would mean for Californians looking to buy or refinance a home
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What seems like an incremental increase in interest can be a major hit to a buyer’s budget. If you bought a $1 million house with 20% down four years ago with what was then the average 30-year mortgage rate (2.88%), your monthly payment including taxes and fees would have been $4,630. If you were to buy a $1 million house this week, even at the freshly lowered rates, the payment would be $6,375. Still, that’s an improvement from last fall, when that payment would have been $7,062 with a 7.79% rate.
And, of course, $1 million buys you less house in California than it did in 2020. In August 2020, the typical home value in San Francisco was $965,000; as of June 2024, it’s $1.18 million. Statewide, average home values rose 38.36% from June 2020 to June 2024, according to Zillow.
Even with rising interest rates, which typically subdue demand and bring down prices, the cost of living has continued to rise in the Golden State. For decades, too few homes have been built for too many people, and higher interest rates make it challenging for developers to finance new construction.
Lautz said high mortgage rates and the trend of people leaving California may have contributed to a “softening” in how fast home prices have risen in recent years, but “there’s still plenty of demand for housing, even in this unaffordable housing market.”
In general, lowering rates push demand up, as more homes come into a potential buyer’s budgetary reach. There may also be an increase in supply as people decide it’s time to sell — though the lock-in effect of very low mortgage rates is likely making a lot of the 3% club stay put. But economists are predicting more cuts from the Fed over the next couple of years, so if you can afford to hold out, you might consider it.
Though maybe not for too long: Lautz said your chances of scoring a pandemic-era mortgage rates in the foreseeable future are slim.
While rates coming down further into the low 6% or even 5% range is feasible, she said, “we can certainly say rates in the 2% and 3% range aren’t going to be happening anytime soon.”
