Between home prices and home inventory, the housing market has been a struggle for those home buyers interested in buying a new home for sale or a previously-built resale. Home inventories has not rebounded from being “wiped out” during the pandemic when interest rates dropped to the lowest levels ever seen. The amount of homes being built by new home builders have not recovered enough to supply the demand that is in the market. Also, homeowners who were thinking about selling their homes are in a holding pattern because the interest rates have been so high that it has been prohibitive to sell a home and purchase a new one with a loan which would have more than double the interest rate of their current home loan.

Good news came to home buyers though when mortgage interest rates dropped to their lowest level in 5 weeks. The average interest rate dropped to 6.35%, down from 6.73% in March, according to mortgage buyer Freddie Mac. Interest rates which are closer to 6% versus 7% are always good news.

“This week’s decrease continues a recent sideways trend in mortgage rates, which is a welcome departure from the record increases of last year,” said Sam Khater, Freddie Mac’s chief economist.

The focus of interest rates is the debt-to-income ratio which lenders calculate to see how much a home buyer can afford to buy. The increase in interest rates has shown a huge discrepancy in monthly payments because of the difference of hundreds of dollars in monthly loan payment cost. The same house at the same price could be priced out of a home buyer’s affordability range due to it changing the debt-to-income ratio.

So, the decrease in mortgage rates is good news for now. Nationally, inflation is also down, so it will be a game of wait-and-see to see what the Federal Reserve with interest rates now that inflation is cooling.

For now, home buyers have a couple of choices to deflect the high interest rates. The first one is to buy now and refinance later. There are buyers who think that these high rates will eventually come down, so they will go ahead and buy a home at a higher rate and then refinance it later when the rates drop. Another option to purchase a new home is called a mortgage rate buydown. Buyers who qualify can get a lender program, where they pay for a couple to few years at a lower interest rate with an agreement the rate will go up. When the rate goes up, the home buyer has the option to refinance to stay at a lower rate.

So, overall, the decrease in interest rates, no matter how slight, can be a sign of better days to come in the real estate market.

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