Mortgage rates are down again this week—the lowest level since May.
The rate on the 30-year fixed mortgage declined to 6.61% from 6.67% the week prior, according to data released by Freddie Mac on Thursday. Rates fell for the ninth consecutive week. Overall, rates have fallen over a full point from 7.79% in October.
For potential homebuyers, the recent improvement should, in theory, provide relief. But the limited inventory of existing homes on the market continues to be a challenge when it comes to affordability.
Said Keith Gumbinger, vice president of HSH.com: “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.”
Mortgage rates held steady this week as they tracked the yield on the 10-year Treasury, which remained around 3.9% after the Federal Reserve announced its decision to hold its benchmark rate steady in December.
The Fed also signaled plans to cut rates up to three times in 2024, improving economists outlook for mortgage rates. The National Association of Realtors (NAR) forecast rates to average 6.3% in 2024, while economists at Realtor.com said they expect rates to average 6.8% for the majority of the year – before dipping to 6.5% by the year-end.
Though homebuyers have been slow to respond to the recent decline in rates, as is typical during holiday season, that may soon shift in the new year.
“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,” Gumbinger said.
Some homeowners may even be enticed to sell if they think they can get a good interest rate. Though for the most part, most folks seem to be happy with their current rates.
According to Realtor.com roughly two-thirds of outstanding mortgages have a rate under 4% and more than 90% have a rate less than 6%. In November, though, there were 7.5% more newly listed homes on the market compared to last year – a sign of some more action from sellers.
“There are more sellers coming into the market, but it’s still limited,”Jeffrey Ruben, president of WSFS Mortgage, told Yahoo Finance. “The overall story for the housing market is that there are fewer homes available compared to the number of people who want to buy a home.”
‘If rates fall… expect bidding wars’
Although the recent declines in mortgage rates haven’t translated to a recovery in home sales, there have been some subtle signs of life in the market.
November existing home sales saw an increase for the first time in five months, with NAR’s chief economist Lawrence Yun noting that more activity could be expected in the resale market if rates continue to plunge.
The volume of refinance applications also saw a boost the week ending Dec. 8, jumping as much as 19%, according to the MBA. In November, new home purchases also increased 21.8% from a year ago, a reversal from October when high rates caused applications to fall by 12%.
Still, it will take at least a couple of months for some economic indicators to pick up the shift in the market. Contract signings or pending home sales, for example, take at least one to two months before they register as a fulfilled sale.
“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 [in the homebuying process],” Yun said during the press conference last week, “[and homebuyers] do not change their mindset from being on the sidelines to going into the market in one day.”
While inventory of previously-owned homes has improved modestly, they are still near historically low levels – pushing home prices higher. For instance, the median sales price for a previously-owned home rose 4% year over year to $387,600 in November, according to the NAR, marking the fifth consecutive month of increases.
The inventory of unsold existing homes also fell 1.7% last month to 1.13 million units at the end of November, equal 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,” Ruben said. “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.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
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