‘Good news’ for spring home-buying season as mortgage rates melt, but economists warn ‘finding a deal remains an elusive task’
Mortgage rates have fallen to their lowest level since mid-September, drawing eager homebuyers out of their winter quarters.
“Demand for homebuyers is thawing after months of a housing freeze,” said Sam Khater, chief economist at housing giant Freddie Mac.
“Prospective homebuyers remain sensitive to changes in mortgage rates, but there remains a lot of demand fueled by first-time homebuyers.”
Economists are also watching for the Fed’s next rate hike – and are hoping that a modest hike in the Federal Funds Rate will keep mortgage rates tame.
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30-year fixed-rate mortgages
The average 30-year fixed rate declined further to 6.13%, Freddie Mac reported on Thursday. Last week the average rate was 6.15%.
A year ago, this time the average rate was 3.55%.
Although this week’s mortgage data marks the third straight weekly decline, some economists remain skeptical of rates falling below 6%.
“Despite easing inflation, the expected continued tightening monetary policy could keep mortgage rates in the 6% to 7% range in the near term,” writes Realtor.com economist Jiayi Xu.
15-year fixed-rate mortgages
The average 15-year fixed rate fell to 5.17% from the previous week’s rate of 5.28%.
This time last year it was 2.80%.
“Mortgage rates could fall even further in the coming weeks as investors expect the Federal Reserve to make a smaller rate hike in February thanks to slowing inflation,” said Nadia Evangelou, senior economist for the National Association of Realtors.
“In fact, this is the first time in almost two years that the inflation rate is finally lower than last year,” says Evangelou, noting that the inflation rate was 6.5% at the end of 2022, compared to 7.0% in 2021.
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Affordability of housing remains a hurdle
While December new home sales were up 2.3% from the revised November figure, this was certainly not a reaction to falling prices. In fact, the median selling price of a new home rose 7.8% to $442,100.
“The emotional roller coaster ride home that shopping can be was compounded by the ups and downs in mortgage rates over the last year, which for the most part have included more ups than downs,” writes Danielle Hale, chief economist at Realtor.com.
“Whether buyers are focused on recent cost relief or the surge that still dominates the yearly trend will likely impact how eagerly they approach the housing market in 2023.”
Hale adds that while the latest data suggests some households may be re-entering the market, others are “still being held back by rising costs compared to a year ago.”
“Even as the pace of rental and price growth slows, finding a deal remains an elusive quest for consumers.”
Mortgage applications are skyrocketing
Mortgage demand has increased by 7% since last week, according to the Mortgage Bankers Association (MBA).
Joel Kan, MBA’s vice president and associate chief economist, called falling interest rates “good news for prospective homebuyers as they head into the spring homebuying season.”
“Home buying activity remains tepid, but if interest rates continue to fall and home prices continue to cool, we expect potential buyers to come back into the market. Many have been waiting for the affordability challenges to subside,” says Kan.
Refinancing activity was also up 15% this week, although that’s still 77% off the pace of last year — offering “very little refinancing incentive” for any borrower locked into lower rates, Kan notes.
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