Why a 0.08% drop in the mortgage rate might seem bigger than that
Why a 0.08% drop in the mortgage rate might seem bigger than that
The average interest rate for a 30 year mortgage dropped 0.08% this week, to 6.95%, according to data from Freddie Mac. That might not seem like a big deal, but it does bring the average mortgage rate below 7% for the first time since August.
For people who’ve been wanting to jump into the housing market fray, could this make them more likely to take the leap?
When the left-most digit of a number changes, there’s research that shows we tend to give the change more weight.
“If you’re moving from 7.25 to 7, it may seem a little bit less of a drop than 7 to 6.75, for example,” said Simon Blanchard, who studies financial decision making as a professor at Georgetown.
So that change in the mortgage rate from 7.03% last week to 6.95% this week is especially eye-catching.
It could also to translate to hundreds of dollars in savings for people who are buying now as opposed to a month ago.
Redfin chief economist Daryl Fairweather says this could encourage hesitant first time buyers to get back out there.
“Especially people who feel like ‘Oh, I’m just I’m so close, I’m like, almost there to being able to afford a home,'” she said.
In Raleigh, North Carolina, real estate broker Sheryl Merritt says she hasn’t seen the drop in interest rates affect her business yet.
She says part of her job is to educate buyers about what’s realistic. And those 2 and 3 percent mortgage rates we saw a couple years ago? She says that was an anomaly.
“We will probably never see that again. Interest rates, on average, if you look at the last 50-plus years have been about 6, 6 to 7%,” she said.
Still, Merritt says, with prices as they are, affordability is a huge issue. “Even if the rates go down, it still doesn’t create the opportunity for everyone,” she said.
And those buyers who can afford to start looking might wait to see if mortgage rates keep falling.
Economist Daryl Fairweather compares it to bargain hunting.
“Like are you going to buy your winter coat during the winter sale? Which is like kind of a good sale? Or are you going to wait until summer when they have like their clearance sale. And the winter coat is, like, now out of fashion,” she said.
In the last year or so people got used to playing this waiting game when it came mortgage rates, points out Georgetown’s Simon Blanchard.
So now, he says, they might be willing to wait a little bit longer.
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