‘Welcome development’: With mortgage rates falling for a fifth week, experts say the market is tilting a bit more in favor of buyers although ‘affordability hurdles’ remain
Mortgage rates continued to weaken for the fifth week in a row, after the Federal Reserve announced its seventh interest rate hike this year.
Sam Khater, chief economist at Freddie Mac, points to “softer inflation data and a modest shift in Fed monetary policy” for the continued decline.
The latest Consumer Price Index report from the Bureau of Labor Statistics indicated that inflation could slow, with prices rising less than expected across the board in November.
And although the federal funds rate rose again this week, it was raised by just half a point – compared to previous increases of 0.75 basis points.
“The good news for the housing market is that the recent declines in prices have stabilized purchase demand,” says Khater.
“The bad news is that demand remains very weak in the face of affordability hurdles that remain very high.”
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30-year fixed-income mortgages
Freddie Mac reported Thursday that the average 30-year fixed interest rate fell slightly to 6.31%.
This was down from 6.33% in the previous week and 3.12% a year ago.
“For homebuyers and homeowners, the decline in mortgage rates over the past several weeks has been a welcome development,” says George Ratiu, director of economic research at Realtor.com.
“With more homes available for sale, and more price cuts sporting, some buyers are doing the math and finding that price declines offer better options within their budgets.”
Ratiu adds that while mortgage rates returning to the 3% range are unlikely to happen anytime soon, “even settling rates into the 5.5%-6.0% range in 2023 would provide housing markets with an improved foundation.”
15 years of fixed-income mortgages
The 15-year steady average also fell to 5.54% – compared to last week’s rate of 5.67%. A year ago at this time, the average 15-year home loan was 2.34%.
Prices are still more than double what they were a year ago, notes Nadia Evangelo, chief economist for the National Association of Realtors, plus home prices are still high because of limited inventory.
She says that middle-income buyers earning $75,000 a year “face the largest housing shortage of any other income group.”
“In a balanced market, these buyers should be able to buy half of the homes for sale. However, these middle-income buyers can only buy 20% of all available listings,” writes Evangelo.
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Home price growth is slowing to single digits
Last week’s housing data showed more pullbacks from both buyers and sellers, says Danielle Hill, chief economist at Realtor.com.
“Whether holiday cheer or a gloomy view of current housing market conditions was the larger driver of the decline is an open question, but the result is that the housing market balance is tilted a bit more in favor of buyers,” Hill writes.
In fact, the typical price of homes for sale is up “only” 9.5% compared to a year ago. While this is still above the normal pace of home price increase, this slowdown marks the first time in 49 weeks — nearly one year — that Average home prices are advancing at a single-digit pace.”
Hill expects home sales to remain subdued, however, as the Fed keeps interest rates high to stem inflation. Interest rate increases are expected in the new year, and policymakers expect the federal funds rate to be in the 5-5.25% range (currently at 4.25-4.5%) by the end of 2023.
Mortgage, Refinance Applications See the jump
While mortgage rates are still three percentage points higher than they were a year ago, the recent decline has encouraged a pick-up in buying and refinancing activity.
Mortgage applications jumped 3.2% while the refinancing index rose 3% from last week, according to the Mortgage Banks Association (MBA).
“Financial markets have reacted to mixed signals regarding inflation and the Fed’s next policy moves,” suggests Joel Kahn, vice president and deputy chief economist at MBA.
“Continued moderation in home price growth, coupled with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months,” Kahn adds.
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