Mortgage Rates Are Dropping. What Does That Mean for You?

Mortgage rates have been a hot topic in the housing market over the past 12 months. Compared to the beginning of 2022, rates have [risen dramatically](https://www.freddiemac.com/pmms/archive). Now they’re dropping, and that has to do with everything happening in the economy. Nadia Evangelou, Senior Economist and Director of Forecasting at the _National Association of Realtors_ (NAR), explains it well by [saying](https://twitter.com/NAR_Research/status/1603455050390577152): > ###### _“Mortgage rates dropped even further this week as two main factors affecting today’s mortgage market became more favorable. Inflation continued to ease while the Federal Reserve switched to a smaller interest rate hike. As a result, according to Freddie Mac, the 30-year fixed mortgage rate fell to 6.31% from 6.33% the previous week.”_ So, what does that mean for your homeownership plans? As mortgage rates fluctuate, they impact your purchasing power by influencing the cost of buying a home. Even a small dip can help boost your purchasing power. Here’s how it works. The median-priced home according to the _National Association of Realtors (NAR)_ is [$379,100](https://www.nar.realtor/newsroom/existing-home-sales-slumped-5-9-in-october). So, let’s assume you want to buy a $400,000 home. If you’re trying to shop at that price point and keep your monthly payment about $2,500-2,600 or below, here’s how your purchasing power can change as mortgage rates move up or down (_see chart below_). The red shows payments above that threshold and the green indicates a payment within your target range. [](https://files.simplifyingthemarket.com/wp-content/uploads/2022/12/16162626/buyers-purchasing-power-MEM.png?a=713258-9a8342bcf821027012880bf1d7cccbf7) This goes to show, even a small quarter-point change in mortgage rates can impact your monthly mortgage payment. That’s why it’s important to work with a trusted real estate professional who follows what the experts are projecting for mortgage rates for the days, months, and year ahead. ### Bottom Line Mortgage rates are likely to fluctuate depending on what happens with inflation moving forward, but they have dropped slightly in recent weeks. If a 7% rate was too high for you, it may be time to contact a lender to see if the current rate is more in line with your goal for a monthly housing expense.