TePORT: Americans Prepare to Unlock Dream Homes: In a notable development for the housing market, mortgage rates have experienced a sustained decline for the sixth consecutive week, rekindling activity in the refinance sector. Hovering just above the 7% threshold, the 30-year fixed mortgage rate dipped to 7.03%, a significant reduction from the previous week’s 7.22%, according to a report released by Freddie Mac on Thursday. This marks the lowest point since mid-August and reflects a decrease of three-quarters of a point since the conclusion of October.
Despite the favorable rate environment, prospective homebuyers remained somewhat cautious, with some opting to remain on the sidelines despite the dip. In contrast, homeowners seeking opportunities to refinance were quick to capitalize on the lower rates.
Freddie Mac’s chief economist, Sam Khater, noted that while the initial drop in rates spurred a rebound in purchase applications, this improvement tapered off in the past week. Khater emphasized that, although the lower rates are a welcome relief, a more consistent revitalization of demand would necessitate further reductions in mortgage rates.
Over the last six weeks, some buyers returned to the market, but the most recent decline in rates did not result in additional activity. According to the Mortgage Bankers Association (MBA), the volume of purchase applications fell by 0.3% on a seasonally adjusted basis for the week ending Dec. 1. Overall, purchase activity remained 17% lower than the same period a year ago.
Jeffrey Ruben, president of WSFS Mortgage, commented on the industry’s challenges, attributing the subdued housing market to the shortage of inventory, which has kept home prices elevated. He stated that the rate environment has created constraints, leading to a prolonged period of depressed market conditions.
The shortage of inventory has resulted in elevated home prices, forcing buyers to contend with more expensive monthly payments. According to Realtor.com, since May 2022, a buyer of a typical for-sale home listed at the prevailing fixed-rate mortgage with a 20% down payment has seen the share of their typical household income devoted to housing costs rise from over a quarter to 39% by October. This figure is expected to average 36.7% for 2023, well above the historical average of 21%.
To alleviate some of the financial burden, some individuals have turned to adjustable-rate mortgage loans (ARMs), which often offer a lower starting rate compared to fixed-rate loans. Ruben highlighted the attractiveness of ARM rates, which are approximately 75 to 100 basis points lower than the 30-year fixed, making them an appealing alternative for certain borrowers.
New construction has emerged as a silver lining for buyers seeking opportunities to negotiate price reductions, secure lower rates through mortgage rate buydowns, or receive other incentives such as down payment assistance. However, even this segment of the market has faced challenges under the pressure of higher rates, with sales of newly built homes continuing to decline in October.
While some potential buyers are contemplating their purchase plans, homeowners seized the opportunity to secure a lower rate. The refinance index saw a notable 14% increase from the previous week, as reported by the MBA’s survey of applications for the week ending Dec. 1. This figure was also 10% higher than the same week in the previous year.
Joel Kan, MBA’s deputy chief economist, emphasized that while the overall level of refinance applications remains low, recent increases could indicate that 2023 has marked the low point for this cycle in refinance activity.
The dip in rates is particularly beneficial for new homeowners with fixed rates above 8% or those with adjustable-rate mortgages, providing an opportunity to consider refinancing into a lower, more favorable rate. As Jeffrey Ruben aptly summarized, “People are only dating the rate, meaning they can get something like an adjusted full loan in hopes of down the road, refinance that into a fixed lower rate.” Homeowners who have successfully navigated the challenging market are content, while those still in pursuit of a home are growing increasingly frustrated.
TePORT: Americans Prepare to Unlock Dream Homes
Source: Yahoo Finance
