Why have falling mortgage rates failed to make a major dent in the homebuying slump?
Yes, rates are down. The latest reading – a 6.17% average for a 30-year fixed-rate loan, according to Freddie Mac – is the lowest in a year.
However, a budget-conscious house hunter must consider mortgage rates in relation to the true homebuying cost: monthly payments. My trusty spreadsheet reviewed Freddie Mac’s 55-year history of mortgage rates, focusing on how much rates alone can swing financing costs.
The latest 6.17% rate translates to a monthly house payment of $6.11 for every $1,000 borrowed. For example, that’s $3,055 monthly if you’re borrowing $500,000 or $6,110 if it’s a $1 million loan. And we’re just talking about repaying the loan – not taxes, insurance or association fees.
Now, if you think that’s high, consider October 1981. That’s when 18.63% rates resulted in financing costs of $15.59 per $1,000 borrowed – 154% higher than today. So, it could be much worse.
Let’s take a look back one year, when rates were 6.72%. My raw financing cost yardstick has decreased 6% from $6.35 per $1,000 borrowed — a modest savings.
Over the course of two years, it’s a more meaningful cut – financing is 15% cheaper today than the $7.08 cost per $1,000 borrowed when rates averaged 7.76% in October 2023.
For history buffs, current payments are 16% more affordable than the $7.03 per $1,000 borrowed you’d get with the 55-year average rate of 7.25%.
No panacea
Yes, these dips in financing costs help folks who are close to making their purchasing math work.
However, 6.17% is no panacea for overall homebuying, which runs far below historic norms.
House payments are nowhere near what typical household incomes can stomach. Note that only 15% of California households could afford to purchase the mid-priced home in mid-year 2025, according to the California Association of Realtors.
And, remember, today’s rates aren’t close to the ultimate discounted financing – the 2.7% historically low rates of January 2021. Back then, the Federal Reserve boosted housing while trying to stabilize an economy ravaged by the coronavirus.
Ponder the change from those golden days. Today’s financing costs are 52% higher than the $4.03 per $1,000 borrowed at the mid-pandemic bottom. Additionally, prospective owners must also absorb the soaring housing prices.
The Fed’s thinking has shifted from the previous three years of tight-money policies, which were used to dampen the worst bout of inflation in four decades. Now the big fear is a wobbly job market.
In late 2025, the Fed is again a house hunter’s friend. Twice in two months, the central bank has cut the benchmark rate it controls.
That’s not directly chilling mortgage rates, but it’s a poke that gives modest hope to wannabe homebuyers.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
