Lower mortgage rates make Las Cruces homes more affordable

The Federal Home Loan Mortgage Corporation (Freddie Mac) announced on August 8 that the interest rate on the popular 30-year fixed-rate mortgage dropped to 6.47 percent from 6.73 percent a week earlier. At the same time, the 15-year rate dropped to 5.63 percent. While the lower rates will make it easier for buyers to qualify for mortgages, they remain significantly higher than their all-time lows of 2.77 and 2.10 percent, respectively, during the week of August 5, 2021. The amount of buying power lost over the past three years is nothing short of dramatic.

Take for example a borrower who was fortunate enough to obtain a $300,000, 30-year mortgage in early August of 2021. His or her principal and interest (P&I) payment at that time would have been $1,228 at 2.77 percent. Fast-forward to October of 2023, when the 30-year rate hit its modern day high of 7.79 percent, that same $1,228 payment supported a mortgage of only $170,800 - a loss of $129,200 in buying power. At today’s 6.47 percent rate, the $1228 P&I payment will support a mortgage of $194,850. For those of you fortunate (or unfortunate) enough to recall the all-time high interest rate of 18.63 percent charged in early October of 1981, a $1,228 payment supported a mortgage of only $78,760. Freddie Mac began tracking mortgage rates in 1971.

Higher rates and the resulting higher monthly payments also have a dramatic effect on the amount of income required to make a mortgage affordable. “Housing costs are burdensome if they take up more than 30% of income”, according to the National Association of Realtors (NAR). Using the above numbers, a typical household taking out a $300,000 mortgage at 2.77 percent would have required an annual income of $49,120. When calculated at last October’s high of 7.79 percent, the income required jumps to $86,320. At this week’s rate of 6.47 percent, the number drops to $75,600. What about 1981, you ask? Try $187,040!

Determining affordability is as easy as comparing area home values with the median income in a given area. Take the five most populous zip codes in Las Cruces, for example. According to the Census Bureau, the median household income in the 88001-zip is $31,701. The median sales price of the homes sold in July was $217,500, according to the Las Cruces Association of Realtors, requiring a buyer to use just over 53 percent of his or her gross income toward housing costs. In the 88005-zip, the median income is $50,372 and the July median home price was $309,000. A buyer in that zip would spend just under 48 percent of their gross income for housing. The median income and home price in the 88007 zip were $63,330 and $458,995, respectively, requiring buyers to use 56.3 percent of income. In the 88011-zip, where income and home prices are $73,362 and $359,700, borrowers would use 38 percent of income. Forty-four percent of income is required in the 88012-zip, where income and home prices are $63,545 and $359,900, respectively.

The income required assumes no downpayment and did not take into consideration the cost of property taxes and homeowner’s insurance. The average downpayment for first-time buyers is 6 percent, according to NAR, and 17 percent for repeat buyers, according to the Mortgage Bankers Association.

See you at closing.

Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces, New Mexico. He loves to answer questions and can be reached at 575- 642-2292 or Gary@GarySandler.com .

This article originally appeared on Las Cruces Sun-News: Lower mortgage rates make Las Cruces homes more affordable