Long Island homebuyers hoping for a dramatic drop in mortgage rates this year were disappointed, but Thursday's inflation report suggested rates could fall later in the year.
The average U.S. rate on a 30-year fixed mortgage was 6.89% in the week that ended Thursday, down from 6.95% the previous week, according to mortgage giant Freddie Mac.
Three years ago, before soaring inflation caused mortgage rates to rise, the average was 2.9%.
Home buyers received some positive news on the inflation front on Thursday as the Consumer Price Index fell 0.1% month-on-month in June, while inflation rose 3% year-on-year, the slowest increase since June 2023.
Mortgage rates tend to rise during times of strong inflation and fall when fears of a recession grow. Mortgage rates tend to move in the same direction as the yield on the 10-year Treasury note, which fell Thursday morning after the inflation data was released.
According to Freddie Mac, the average 30-year fixed rate has ranged from a low of 6.6% in mid-January to a high of 7.22% in early May so far this year.
Jessica Lautz, deputy chief economist for the National Association of Realtors, wrote in a commentary published online Thursday that lower inflation would lead the Federal Reserve to lower interest rates.
“Fed Chairman Jerome Powell signaled to Congress yesterday that he has a path to lowering the federal funds rate if inflation continues to slow,” she wrote, referring to the rate at which banks borrow overnight. “Today's numbers showed some cooling.”
But Lautz warned that homebuyers shouldn't expect mortgage rates to fall to historic lows below 3 percent, levels seen only a few years ago.
“Buyers waiting for mortgage rates to return to historic lows again will likely be waiting a very long time,” Lautz added.
Christopher Rovelli, mortgage lender and head of growth at Hartford Funding in Rockville Centre, said Thursday's inflation report was welcome news and he expects new borrowers will finally be able to get lower interest rates and recent homebuyers will be able to refinance.
Meanwhile, Rovelli said buyers are still moving forward because they need more space for their growing families or don't want to pay high Long Island rents.
“Everybody's starting to figure out what interest rates are doing,” he said. “In the past couple summers there was this false hope of, 'We'll just wait until things get back to normal,' but people are starting to realize that they can't wait any longer.”
Interest rates haven't stopped buyers from pushing up home prices. Average prices in Nassau and Suffolk counties hit new records in May. The average sales price in Nassau was $790,000, 13 percent higher than a year ago.
In Suffolk, the median price rose 14.2 percent in May to $651,000, according to the latest data from OneKey MLS.
Local real estate experts point to a limited number of homes on the market as the main factor behind the price increases: In Suffolk, the housing shortage began to ease in May, with the number of homes for sale up 8% compared to the same month last year.
But the situation has worsened in Nassau, where listings were down 17% year-on-year at the end of May.
Jonathan Lamantia covers Long Island residential real estate and other business news. He previously covered health care for Crain's New York Business.