Mortgage rates just fell below 7% - here's how much the monthly payment is now on a $400,000 house

By Aarthi Swaminathan

The 30-year mortgage rate was last below 7% in mid-April

Mortgage rates fell for the third week in a row, pushing the 30-year rate below 7% for the first time in over a month.

The 30-year rate was last below 7% in mid-April.

The 30-year fixed-rate mortgage averaged 6.94% as of May 23, according to data released by Freddie Mac (FMCC) on Thursday.

It's down 8 basis points from the previous week - one basis point is equal to one-hundredth of a percentage point.

A year ago, the 30-year was averaging at 6.57%.

The average rate on the 15-year mortgage was 6.24%, down from 6.28% last week. The 15-year was at 5.97% a year ago.

Freddie Mac's weekly report on mortgage rates is based on thousands of applications received from lenders across the country that are submitted to Freddie Mac when a borrower applies for a mortgage.

Separate data by Mortgage News Daily said that the 30-year fixed-rate mortgage was averaging at 7.09% as of Thursday afternoon. The Mortgage Bankers Association's survey noted that the 30-year was at 7.01% as of May 17.

The big picture: The various people who make up the real-estate sector - from real-estate agents to mortgage lenders to home buyers and homeowners looking to move or refinance - will likely see the drop in rates as a good sign.

And that's for one good reason: the lower rates are, the more affordable it is to buy a home based on monthly housing costs. If a home buyer is paying for a median-priced $429,950 home with a 30-year mortgage at 6.94% after putting 20% down, they would have to pay roughly $2,855 per month, which includes not just their principal and interest, but taxes and insurance as well, according to Realtor.com's calculations for MarketWatch.

To afford that on a monthly basis, a prospective buyer would need to make $9,517 monthly or $114,199 annually. Realtor.com considers a monthly payment as "affordable" if the buyer is spending no more than 30% of their income on housing.

At the same time, other indicators offer further reason for optimism: housing supply is also ticking up, both in terms of newly built and resale homes.

So the housing market may be on the edge of a recovery if the pace of supply and the drop in rates are sustained.

What Freddie Mac said: "Spring homebuyers received an unexpected windfall this week, as mortgage rates fell below the 7% threshold for the first time in over a month," Sam Khater, chief economist at Freddie Mac, said in a statement.

"Greater supply coupled with the recent downward trend in rates is an encouraging sign for the housing market," he added.

What are they saying? "May has been a better month for the mortgage market, with the last 3 weeks showing declining mortgage rates and increasing applications," Bob Broeksmit, president and CEO of the Mortgage Bankers Association, said in a statement. "Rates below 7% are good news for prospective buyers, and MBA expects them to continue to inch lower this summer."

-Aarthi Swaminathan

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05-25-24 0849ET

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