Mortgage rates dropped significantly last week as a result of U.S. Bureau of Labor Statistics statistics that showed inflation had slowed in October, which is a boon for potential home buyers.
According to Freddie Mac, the average 30-year fixed rate dropped by 47 basis points, from 7.08% to 6.62%, the largest weekly drop since 1981. A year ago, the 30-year fixed rate stood at 3.10%.
The average monthly mortgage payment in the U.S. is currently $2,430, down from $2,542 with last weeks dip in mortgage rates. This represents a savings of $112 a month or $1,344 annually for the average home buyer.
If you’re a potential buyer and investor looking to pounce on those savings, here’s how you can take the $112 saved per month and invest it in rental properties to earn passive income and build wealth over time.
“The historic drop in mortgage rates is a tick in the ‘good news’ box for the housing market, as lower rates deliver an immediate win for prospective buyers’ pocketbooks,” said Redfin Corp RDFN Deputy Chief Economist Taylor Marr.
In other words, a home buyer on a $2,500 monthly budget could, at the current 6.6% rate, buy a $380,750 home, giving them $12,000 more purchasing power than they had a week ago.
With rates last week at 7%, the same buyer could have purchased a $368,750 home.
Still, high rates discourage would-be purchasers. The largest annual fall in pending home sales on record occurred over the four weeks ended November 13, according to statistics from Redfin.
“Until we see more consistent evidence over time of slowing inflation and a bigger, steadier decline in mortgage rates, we expect the impact to be muted,” Marr said. “Pending sales and new listings may stop declining, but they aren’t likely to see a major boost until there’s more certainty that the Fed’s efforts to curb inflation are working.”
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