‘Good news’ for spring homebuying season as mortgage rates drop, but economists warn ‘finding a deal remains an elusive task’
Mortgage rates have fallen to their lowest levels since mid-September, attracting homebuyers eager to leave their winter retreats.
“Demand for homes is thawing after a months-long freeze that has gripped the housing market,” said Sam Khater, chief economist at housing giant Freddie Mac.
“Potential homebuyers remain sensitive to changes in mortgage rates, but demand remains robust, driven by first-time homebuyers.”
Economists are also eyeing the next Fed rate hike – and hoping for a slight rate hike for federal interest rate will keep mortgage rates tame.
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30-year fixed-rate mortgage
Medium 30 year fixed rate fell further to 6.13%, Freddie Mac reported Thursday. Last week, the average rate was 6.15%.
This time a year ago, the average rate was 3.55%.
Although this week’s mortgage data marks a third straight week of declines, some economists remain skeptical of interest rates falling below 6%.
“Although inflation is slowing, the expected restraining monetary policy is likely to keep mortgage rates at 6%-7% in the short term.” write Realtor.com economist Jiayi Xu.
15 year fixed rate mortgage
Medium 15 years fixed rate fell to 5.17%, from 5.28% last week.
This time last year, it was 2.80%.
“Mortgage rates could fall further in the coming weeks as investors expect the Federal Reserve to deliver a smaller rate hike in February as inflation eases.” speak Nadia Evangeliou, senior economist for the National Association of Realtors.
“In fact, this is the first time in almost two years that the inflation rate has finally been lower than the year before,” Evangeliou said, noting that the inflation rate was 6.5% at the end of 2022, compared to 7.0% in 2021.
Read more: Insurance rates are growing faster than inflation in some states – are your finances keeping up?
Housing affordability remains a barrier
While December new-home sales were up 2.3% from November’s revised figure, that’s certainly not a reaction to the price drop. Indeed, the median sale price of a new home rose 7.8% to $442,100.
“Emotions of home shopping can be amplified by the rise and fall of mortgage rates over the past year, largely related to increases rather than declines.” write Danielle Hale, chief economist at Realtor.com.
“Whether shoppers are focused on recent cost reductions or the upward price trend that still dominates year-to-date could affect how eager they are to hit the housing market in 2023.”
Hale added that while recent data suggests some households may be able to return to the market, others “could still be hampered by higher costs compared to a year ago.” .
“Although the pace of rent and price growth is slowing, finding a deal remains an elusive task for consumers.”
Mortgage apps jump up
Mortgage demand increased 7% from last week, according to the Mortgage Bankers Association (MBA).
Joel Kan, vice president and chief economist at MBA, calls the falling rate “good news for potential homebuyers preparing for the spring homebuying season.”
“Home buying activity remains tepid, but if interest rates continue to fall and home prices cool further, we expect to see potential buyers return to the market. Many are waiting for the affordability challenges to ease,” Kan speak.
Kan noted that refinancing activity also increased 15% this week, though still 77% slower than last year’s pace – providing “very little incentive to refinance” for any borrower. have lower interest rates.
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