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• Even with mortgage rates falling, homes are still far too expensive for most buyers.

Mortgage rates recently fell below 7% for a 30-year fixed-rate mortgage. It has been over a month since that last happened. The drop is meaningless. Rates are still far too expensive for most home buyers.

Mortgage rates were just under 3% at the start of 2022. The Federal Reserve had held its rates near zero since the financial disaster in 2007 and 2008. In those two years, the housing market plunged, with prices down over one-third in some regions. Foreclosures surged. Low mortgage rates were likely the only path to the improvement that took home prices to record levels.

Low rates sparked a rush of buyers, which helped drive home prices. They have almost doubled since the start of 2020. Another factor in this rise, more recently, is that the inventory of homes for sale has declined. It is classic supply and demand.

Last month, the median price of a home nationwide reached $420,000. A recent low supply of homes has been a reason for this rise. Few people want to sell a home on which they have a 3% mortgage only to buy one with a 7% mortgage. According to the National Association of Realtors, existing home sales fell in April, a trend that has gone on for over a year.

Most buyers find the cost of a home easiest to calculate using the monthly payment. Today, this monthly payment, including loans, insurance, and taxes, is about $3,000. At 3%, the figure is about $1,700.

Mortgage rates may have dropped below 7%, but for most people looking for a home, that barely matters.

The Most Affordable Housing Market in Each State

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