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The average long-term U.S. mortgage rate tumbled by nearly a half-point this week, but will likely remain a significant barrier for potential homebuyers as Federal Reserve officials have all but promised more rate hikes in the coming months.

Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate fell to 6.61 percent from 7.08 percent last week. A year ago the average rate was 3.1 percent.

The rate for a 15-year mortgage, popular with those refinancing their homes, fell to 5.98 percent from 6.38 percent last week. It was 2.39 percent one year ago.

It’s the largest weekly drop since 1981. The result? A boost to homeowners’ ability to afford homes even if mortgage rates are double what they were a year ago.

This drop in average mortgage rates means the national median monthly mortgage payment nationwide is now $2,430, down from $2,542 from the week before, according to brokerage and listings portal Redfin. The spread is even bigger in high-cost Massachusetts. Based on the October median single-family sale price of $520,000 per The Warren Group, publisher of Banker & Tradesman, and a 5 percent down payment a homebuyer would face a monthly mortgage payment of $3,313 with a 7.08 percent interest rate. At a 6.61 percent rate, the buyer of the same home would only pay $3,158 – a $155 difference.

According to Redfin’s calculations, the drop in interest rates could add between $10,000 and $20,000 to the final home sale price a buyer could afford, depending on the down payment.

“The historic drop in mortgage rates is a tick in the ‘good news’ box for the housing market, as lower rates deliver an immediate win for prospective buyers’ pocketbooks,” Redfin Deputy Chief Economist Taylor Marr said in a statement. “Until we see more consistent evidence over time of slowing inflation and a bigger, steadier decline in mortgage rates, we expect the impact to be muted. Pending sales and new listings may stop declining, but they aren’t likely to see a major boost until there’s more certainty that the Fed’s efforts to curb inflation are working.”

Still, those monthly payments are a far cry from what a buyer would have paid last November, when the Freddie Mac-reported average rate on a 30-year mortgage sat at 3.01 percent. Based on November 2021’s median statewide single-family sale price of $510,000, a buyer would only pay $2,2,045 per month. This affordability crunch helped send October Massachusetts single-family home sales to their lowest level since 2012, according to The Warren Group.

Rate-Hike Optimism Dashed

There had been some hope that the Fed would begin to dial the rate increases down as more evidence comes in that prices may have peaked. However, recent comments by Fed officials may have knocked down that optimism. Two weeks ago, the Fed raised its short-term lending rate by another 0.75 percentage points, three times its usual margin, for a fourth time this year as part of its inflation-fighting strategy. Its benchmark rate now stands in a range of 3.75 percent to 4 percent.

James Bullard, who leads the Federal Reserve Bank of St. Louis, said Thursday that the Fed may have to raise its benchmark interest rate much higher than it has previously projected to get inflation under control.

The Fed’s next two-day rate policy meeting wraps up on Dec. 14.

The Labor Department reported last week that consumer inflation reached 7.7 percent in October from a year earlier, the smallest year-over-year rise since January. Excluding volatile food and energy prices, “core” inflation rose 6.3 percent in the past 12 months. On Wednesday, Labor reported that prices at the wholesale level fell for the fourth straight month.

Those figures were all lower than economists had expected, but it remains to be seen whether it’s enough to get the Fed to ease off the jumbo rate hikes.

Interest Rates Savage the Housing Industry

Three weeks ago, the average long-term U.S. mortgage rate topped 7 percent for the first time in more than two decades, which combined with sky-high home prices, have crushed homebuyers’ purchasing power by adding hundreds of dollars to monthly mortgage payments.

Sales of existing homes have declined for eight straight months as borrowing costs have become too big of an obstacle for many Americans already paying more for food, gas and other necessities. On top of that, homeowners seeking to upgrade or change locations have held off listing their homes because they don’t want to jump into a higher rate on their next mortgage.

The sagging housing market has prompted real estate companies to dial back their financial outlooks and shrink their workforces. Online real estate broker Redfin is letting go of 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow.

Redfin also laid off 470 employees in June, blaming slowing home sales. Through attrition and layoffs, Redfin has slashed more than a quarter of its workforce on the assumption that the housing downturn will last “at least through 2023,” it said in a regulatory filing.

Another online real estate broker, Compass, has laid off hundreds of workers this year.

While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.

Banker & Tradesman staff writer James Sanna contributed to this report.