Monthly mortgage payments decline for first time since 2020: Analysis

Mortgage payments edged downwards for the first time in four years as falling inflation is finally being felt in the housing sector.

Median mortgage payments declined by 0.1 percent over the four weeks ending Aug. 18 to $2,587 at a 6.49 percent interest rate, according to data published Thursday by real estate company Redfin.

Mortgage rates have made a modest decline over the past year, falling from a more than 20-year high of 7.8 percent last October to 6.49 percent earlier this month, according to national mortgage backer Freddie Mac.

“The late-summer decline in mortgage rates continued last week, with the 30-year fixed rate dropping to 6.5 percent – the lowest since May 2023,” Mortgage Bankers Association CEO Bob Broeksmit said in a statement.

Despite the decline in rates and monthly payments, mortgage applications fell last week as housing prices remain elevated.

“Applications to refinance and buy a home both fell last week, which may be an indication that some prospective borrowers are hoping that rates decrease even more before they decide to apply,” Broeksmit said.

Pending home sales are down 5.3 percent over the last year, the largest drop in nine months, exempting the four weeks ending Aug. 4, Redfin data shows. Mortgage-purchase applications are down 8 percent.

Inflation in the housing sector, which trails overall inflation, has been falling since 2023, with owners’ equivalent rent sliding from an annual increase of 8.1 percent last April to 5.3 percent in July. 

While the headline consumer price index (CPI) has hovered around 3 percent over the last year as inflation has remained sticky, housing costs have been descending more steadily, with both owners’ equivalent rent and rent of shelter costs making smooth declines off recent highs.

House prices overall are up 3.6 percent on the year, according to Redfin, still near their record highs. The median sale price of a house in the U.S. fell in the second quarter to $412,300 from $426,800 in the first quarter, according to data from the Census Bureau and Department of Housing and Urban Development.

That’s still considerably higher than pre-pandemic levels. Average house prices are up more than 25 percent since the first quarter of 2020.