Last week, mortgage rates dropped below 8%, marking a significant decrease. Despite staying high, they plunged the fastest in 16 months, indicating a notable shift in the housing market.
In response to the decline in fixed mortgage rates, Chief Economist Mark Fleming from First American shares insights on what might motivate homeowners to enter the US housing market.
Mark Fleming acknowledged the substantial weekly shift in mortgage rates. He emphasized that even at 7.6%, it remains comparatively high compared to rates from just a few years ago.
Despite this, there is a sense of contentment as it represents a notable drop from the 8% mark. He says discussions about the Federal Reserve potentially halting rate cuts signal a returning sense of certainty to the market.
Mark Flemming’s outlook on the Mortgage rates
Fleming mentioned to Yahoo Finance that there are psychological benchmarks tied to key numbers. He highlighted the positive impact of mortgage rates dropping below 7%.
In Fleming’s view, mortgage rates dropping to below 6% or within the 5% range could prompt people to consider moving despite having relatively lower current rates.
Mark expressed optimism, suggesting that there might be further reductions in rates in the coming months. He conveyed a willingness to welcome any relief in the current market conditions.
Usually, the housing market is the first to dip into a recession when the Fed increases rates and the first to recover. However, this time is somewhat different.
Due to many people securing exceptionally low rates, the limited housing inventory is crucial in maintaining elevated prices.
Even with a slight rate decrease, Mark doubts it will alter the supply shortage dynamics.
Currently, 90% of mortgaged homeowners enjoy rates below 6%, and he doesn’t anticipate seeing a 6% rate anytime soon.
For potential homebuyers, the positive aspect is that real estate often takes the lead in responding to Federal Reserve movements, offering insights into market trends.
Whitney anticipates a housing market shift in 2024
Renowned analyst Meredith Whitney, famed for foreseeing the 2008 financial crisis, is now forecasting significant shifts in the housing market, with her predictions pointing towards dramatic changes set to commence in 2024.
She predicts a reversal of the current trends, foreseeing a decline in prices and an increase in the supply of homes for sale. It would be a shift that could alleviate the challenges many Americans currently face in home-buying.
Referring to AARP estimates, Whitney highlights that 51% of individuals over 50, a demographic owning over 70% of US homes, are poised to downsize to smaller residences. This potential shift could introduce more than 30 million housing units in the market.
Anticipating a significant change in the supply-demand dynamic, Whitney mentioned that the shift is expected to commence late next year, extending into 2025.
She characterizes it as a multi-decade cycle, emphasizing the substantial home equity Americans hold and posing the question of when they will choose to access it.
Mortgage rates dip, igniting a surge in demand and favorable loan terms
Last week marked the most significant one-week decline in mortgage rates over a year, leading to the first upswing in mortgage demand in a month.
According to the Mortgage Bankers Association’s seasonally adjusted index, total mortgage application volume increased by 2.5% compared to the previous week.
The average contract interest rate for 30-year fixed-rate mortgages, within conforming loan balances of $726,200 or less, dropped to 7.61% from 7.86%.
This decrease was accompanied by a decline in points to 0.69 from 0.73 (including the origination fee) for loans with a 20% down payment.