A well-qualified borrower in California can lock down a 30-year fixed rate mortgage at 5.99% with 1-point cost.
It was July 2024 — 13 months ago — when the rate was this low.
That’s also for a loan up to $806,500 also known as a Fannie Mae or Freddie Mac conforming mortgage.
Meanwhile, this week the Freddie Mac 30-year fixed rate averaged 6.58%, its lowest level since October 2024, dropping 5 basis points from last week.
“Mortgage rates fell to their lowest level since October,” said Sam Khater, chief economist at Freddie Mac. “Purchase application activity is improving as borrowers take advantage of the decline in mortgage rates.”
Consumers are taking note. The Mortgage Bankers Association reported a 10.9% loan application increase from the previous week. And the MBA refinance index jumped 23% from the previous week.
How can there be such a disparity between Freddie Mac and California rates?
Nationally, Freddie Mac collects weekly purchase money mortgage application rates (data) submitted to Freddie based on its Primary Mortgage Market Survey of lenders. A national average mortgage rate is calculated out of all the “selected” loan applications, according to an FAQ on Freddie’s website.
To my knowledge, California mortgage loans tend to be significantly larger than the national average. Therefore, California lenders price more aggressively due to more real dollars of lender loan origination profit.
For example, 1% loan origination fee on an $800,000 California mortgage is $8,000. Compare that with a $400,000 mortgage at 1% being $4,000 or 50% less.
To be clear, I’m comparing Freddie’s calculated average retail rate to California wholesale lender rate sheets with a retail markup.
It’s fair to assume local rates are always going to be a good one-half point lower than the weekly Freddie rates.
Mortgage rates may fall further after the July jobs number indicated only 73,000 new jobs were created nationwide. Economists were expecting 115,000 new jobs. May and June numbers were also revised downward. This can be an indicator of an economic slowdown.
And inflation was held in check at 2.7%, offering further support for a September federal funds rate cut of 25 to 50 basis points.
This doesn’t mean mortgage rates will drop by 25 to 50 basis points. What it does mean is this is one point of support to find mortgage rates dropping further.
This mortgage rate improvement has happened none too soon.
A new survey by Truework of 1,000 recent U.S. homebuyers (purchased within the past 18-24 months) reveals a concerning trend: Younger buyers are making risky financial bets on their ability to refinance in the future, with nearly two-thirds of Gen Z (64%) and millennial buyers (65%) saying it’s important to their financial health to be able to refinance their mortgage.
It’s not just the younger crowd who is banking on a future drop in interest rates. In fact, 56% of all recent buyers said that refinancing to a lower rate is important or extremely important to their financial health, and 25% said the ability to refinance is extremely important to their economic well-being according to the survey.
High home prices along with high interest rates caused many real estate professionals to pitch the idea of “marrying the property and dating the interest rate.” Maybe that’s where some of this refi angst is coming from.
As mortgage rates fall, you can expect more sidelined homebuyers to jump back in, in the name of affordability.
Take an $806,500 loan amount at 6.75% on a 30-year fixed rate mortgage. That’s a principal and interest payment of $5,231. At 5.99% the principal and interest payment is $4,830. That’s $401 of improved affordability.
Is it a buyers’ market or is it a sellers’ market?
I’m seeing the clean, well-priced turnkey properties are still receiving multiple offers. The over-priced properties are sitting. So, it’s a little bit of both.
Freddie Mac rate news
The 30-year fixed rate averaged 6.58%, 5 basis points lower than last week. The 15-year fixed rate averaged 5.71%, 4 basis pointslower than last week.
The Mortgage Bankers Association reported a 10.9% mortgage application increase compared with one week ago.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $48 less than this week’s payment of $5,140.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.49%, a 15-year conventional at 5.25%, a 30-year conventional at 5.99%, a 15-year conventional high balance at 5.625% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year high balance conventional at 6.375% and a jumbo 30-year fixed at 6.125%.
Eye catcher loan program of the week: A 30-year mortgage, fixed for the first five years at 5.5% with 30% down payment and 1 point cost.
Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com.