In a much-needed boost for the struggling housing market, mortgage rates have dropped below 7% for the first time in four months. This decline comes after seven consecutive weeks of downward movement, bringing the average rate for a 30-year fixed-rate loan to 6.95% from 7.03% last week, according to Freddie Mac. The unexpected and substantial fall in mortgage rates could potentially revitalize the housing market, which has been suffering from low levels of home sales.
Experts believe that the lower rates may motivate some homeowners to put their properties on the market, alleviating the current inventory shortage. Mark Hamrick, a senior economic analyst at Bankrate, stated that the decrease in mortgage rates could help lift the housing market out of its current stagnation. He also added that with inflation decelerating and the Federal Reserve Board expected to lower the federal funds target rate next year, there is a likelihood of a gradual thawing of the housing market in the new year.
The Federal Reserve's decision to hold its benchmark rate steady and project future cuts in 2023 has contributed to the decrease in mortgage rates. This unexpected move has led to a drop in 10-year Treasury yields and subsequently brought down mortgage rates sooner than anticipated. Thomas Ryan, a property economist at Capital Economics, noted the role of the Federal Reserve in this regard.
However, while this scenario may set the stage for a recovery in housing market activity in 2024, it is unlikely that borrowing costs will return to the record lows seen in the 2010s. Ryan predicts that the recovery in demand and sales will be slow, indicating that there will be limitations to the extent of the market's revival.
Despite this, falling mortgage rates and rising income are expected to lead to an improvement in housing demand. The National Association of Realtors (NAR) predicts a 13.5% increase in existing home sales in 2024. The NAR also projects that median home prices nationally will remain stable, resulting in modestly improved affordability due to rising income.
The recent drop in mortgage rates is a welcome development for potential homebuyers who have been hindered by higher borrowing costs and increased competition in a market with limited inventory. Freddie Mac reported that the average rate on a 30-year mortgage fell to its lowest level since early August, offering some respite for those looking to enter the housing market. However, despite the positive impact, the rate remains significantly higher than it was two years ago when it stood at 3.12%. This substantial difference between current rates and those from two years ago has contributed to the shortage of homes for sale, as homeowners who secured low rates are discouraged from selling.
Ultimately, the decrease in mortgage rates provides a glimmer of hope for the housing market, with the potential for increased activity and improved affordability for buyers. However, experts warn that the recovery may be slow, and the market is unlikely to return to the levels seen in previous years. Nonetheless, the decline in rates is a positive development that may help spur a thaw in the housing market and provide some relief to prospective homebuyers.
