This week, mortgage rates have dropped once again, reaching their lowest point since May.
According to data released by Freddie Mac on Thursday, the rate on the 30-year fixed mortgage decreased to 6.61% from last week’s 6.67%.
This marks the ninth consecutive week of declining rates, showing a steady decrease from October’s 7.79%. Overall, the rates have fallen by more than a full point.
In theory, the recent improvement in mortgage rates should offer relief to potential homebuyers. However, the challenge of affordability persists due to the limited inventory of existing homes in the market.
Keith Gumbinger, vice president of HSH.com, expressed concern, 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.”
According to Keith Gumbinger, vice president of HSH.com, the decrease in rates increases the likelihood of prices rising earlier than usual in 2024. This, he notes, could potentially diminish the benefits of the lower mortgage rates.
Stable Rates, Seller Activity, and Potential Buyer Response
This week, mortgage rates remained stable, mirroring the 10-year Treasury yield, which stayed around 3.9%. This alignment followed the Federal Reserve’s decision to maintain its benchmark rate in December.
Additionally, the Federal Reserve indicated intentions to reduce rates up to three times in 2024, boosting economists’ optimism regarding mortgage rates.
The National Association of Realtors (NAR) predicted rates to average 6.3% in 2024, while Realtor.com economists anticipate an average of 6.8% for most of the year, gradually decreasing to 6.5% by the year’s end.
While homebuyers have been sluggish in reacting to the recent rate drop, which is customary during the holiday season, this trend may change in the upcoming new year.
According to Gumbinger, “If rates remain low into the middle of next month, there’s a good likelihood that we’ll see a fairly strong response on the part of potential homebuyers.”
There’s a possibility that some homeowners might be tempted to sell if they believe they can secure a favorable interest rate. However, overall, many individuals appear content with their existing rates.
Realtor.com reports that about two-thirds of existing mortgages carry a rate below 4%, with over 90% having a rate less than 6%.
In November, there was a 7.5% increase in newly listed homes compared to the previous year, indicating increased activity from sellers.
Jeffrey Ruben, president of WSFS Mortgage, mentioned to Yahoo Finance, “There are more sellers coming into the market, but it’s still limited.”
The housing market’s overarching narrative is a scarcity of available homes in contrast to the demand from prospective buyers.
Mortgage Rate Decline and Shifting Trends
Despite the recent mortgage rate declines not leading to a 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 NAR’s chief economist Lawrence Yun suggests that more activity could be expected in the resale market if rates continue to drop.
Additionally, refinance applications experienced a significant boost, rising by as much as 19% in the week ending Dec. 8, according to the MBA.
Furthermore, new home purchases in November increased by 21.8% from a year ago, reversing the decline observed in October due to high rates.
It will require several months for certain economic indicators to reflect the market shift. Factors like contract signings or pending home sales typically take one to two months to register as completed sales.
Lawrence Yun emphasized this point in a recent press conference, stating, “We may not see any meaningful recovery for at least two or three months, just because even with meaningfully lower mortgage rates, there is a natural time involved.”
Homebuyers don’t shift their mindset from being on the sidelines to entering the market in just one day.
Housing Market Dynamics
Despite a modest improvement in the inventory of previously owned homes, they remain close to historically low levels, contributing to upward pressure on home prices.
In November, the median sales price for a previously owned home increased by 4% year over year to $387,600, as reported by the NAR. This marks the fifth consecutive month of price increases.
The inventory of unsold existing homes declined by 1.7% last month, reaching 1.13 million units by the end of November, equivalent to a 3.5-month supply.
Housing experts suggest a balanced market should ideally have at least six months of supply.
Jeffrey Ruben commented on the potential impact of falling rates, noting that lower rates could attract more buyers, leading to bidding wars and upward pressure on prices.
He also observed a slight relief in new listings as sellers seize the current opportunity to sell, anticipating this trend might extend into the next year.