Here’s how much money you need to buy a $400,000 home

Mortgage rates fell to their lowest level in two years on the day after the Federal Reserve cut its benchmark interest rate.

The 30-year fixed-rate mortgage averaged 6.09 percent as of Sept. 19, according to data released by Freddie Mac on Thursday.

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It is down 11 basis points from the previous week. One basis point is equal to one hundredth of a percentage point.

A year ago, the 30-year rate averaged 7.19%.

The average 15-year mortgage rate was 5.15 percent, down from 5.27 percent last week. The 15-year rate was at 6.54% a year ago.

Freddie Mac’s weekly mortgage rate report is based on thousands of inquiries received from lenders across the country, which are submitted to Freddie Mac when a borrower applies for a mortgage.

Separate data from Mortgage News Daily said the 30-year fixed-rate mortgage averaged 6.15 percent as of Thursday morning. The Mortgage Bankers Association survey said the 30-year was 6.15 percent as of Sept. 6.

The big picture: Mortgage rates are 110 basis points lower than a year ago and are expected to fall even lower, which could spur more activity in the housing market.

Homeowners who bought at higher rates are already committing to refinancing their outstanding mortgage balances, as seen in recent data.

But buyers have largely pulled back. Although a drop in mortgage rates helps improve housing affordability, home buyers still have to deal with high prices.

In August, home prices set a new record for the month, and existing home sales fell to their lowest level since October 2023.

What Freddie Mac said: “While mortgage rates do not directly follow the Federal Reserve’s moves, this first cut in more than four years will have an impact on the housing market,” said Sam Khater, chief economist at Freddie Mac.

“The decline in mortgage rates over the past few weeks indicates that this reduction has largely been achieved, but we expect rates to fall further, triggering more housing activity,” he added.

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What do they say? For buyers, a drop in rates increases purchasing power by nearly $12,000 compared to a year ago.

A buyer looking for a home at the median listing price of $430,000 this August with a 6.09 percent rate and a 20 percent down payment would need an annual income of about $107,900, according to calculations provided to MarketWatch by Hannah Jones, a senior. economic research analyst at Realtor.com.

The buyer’s monthly payment would be about $2,700. The analysis also assumes they pay property taxes and homeowners insurance and keep housing costs at 30 percent of their gross income.

A year ago, with rates averaging 7.19%, the same buyer would have had a $3,000 monthly payment on a $436,000 home and would have needed an annual income of about $119,500.

(Realtor.com is operated by News Corp subsidiary Move Inc. MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)

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