Mortgage rates have once again experienced a decline this week, reaching the lowest level since May. According to data released by Freddie Mac on Thursday, the rate on the 30-year fixed mortgage dropped to 6.61% from 6.67% the previous week, marking the ninth consecutive week of decline in mortgage rates. Overall, rates have plummeted by over a full percentage point since October’s peak of 7.79%.
The recent improvement in mortgage rates theoretically offers relief for potential homebuyers. However, the persistently limited inventory of existing homes on the market continues to pose challenges to affordability.
Keith Gumbinger, vice president of HSH.com, expressed concerns, stating, “A drop in rates makes it more likely that prices will start heading higher earlier than normal in 2024, and higher prices will erase some of the benefits of lower mortgage rates.”
This week, mortgage rates held steady, aligning with the yield on the 10-year Treasury, which remained around 3.9%. This stability followed the Federal Reserve’s decision to maintain its benchmark rate in December. The Fed also hinted at plans to cut rates up to three times in 2024, enhancing economists’ outlook for mortgage rates.
The National Association of Realtors (NAR) foresees rates averaging 6.3% in 2024, while economists at Realtor.com expect rates to average 6.8% for the majority of the year, dipping to 6.5% by year-end.
Despite the recent decline in mortgage rates, homebuyers have been slow to respond, typical of the holiday season. However, experts anticipate a potential surge in activity in the new year if rates remain low into the middle of next month.
Realtor.com reports that roughly two-thirds of outstanding mortgages have rates under 4%, with over 90% boasting rates less than 6%. While more sellers are entering the market, inventory remains limited, contributing to the overall challenge of supply and demand in the housing market.
Though the decline in mortgage rates has yet to translate into a full recovery in home sales, there are subtle signs of life in the market. November saw an increase in existing home sales for the first time in five months, and refinance applications surged by as much as 19% in the week ending Dec. 8.
However, experts caution that it will take at least a couple of months for economic indicators to reflect a significant shift in the market. Contract signings, pending home sales, and other metrics have a natural time lag in registering changes.
Despite a modest improvement in the inventory of previously-owned homes, levels remain historically low, pushing home prices higher. The median sales price for a previously-owned home rose 4% year over year to $387,600 in November, marking the fifth consecutive month of increases.
The inventory of unsold existing homes fell 1.7% last month to 1.13 million units at the end of November, equivalent to 3.5 months of supply. Housing experts recommend at least six months of supply for a balanced market.
“If rates fall, we will see more buyers come back to the market, and with limited inventory, that will create bidding wars that push up prices,” said Jeffrey Ruben, president of WSFS Mortgage. “We’re seeing a bit of relief on new listings right now, with more sellers deciding now is the best time to sell, and maybe that will continue into next year.”
Source: Yahoo Finance
