Mortgage rates have been on a downward trend for the fourth straight week, suggesting they might have reached their peak and are drawing more potential homebuyers back into the market.
Freddie Mac reported that the average rate for a 30-year fixed mortgage has fallen to 7.29% from 7.44% just a week earlier. This decrease represents a significant drop of half a point since late October, when rates were at 7.79%.
This decrease in rates has encouraged some buyers, including those buying their first home, to re-enter the market, despite ongoing challenges with high home prices and limited inventory affecting affordability.
“The Freddie Mac fixed rate for a 30-year mortgage eased further this week, as mixed data continue to keep investors guessing,” said Danielle Hale, chief economist at Realtor.com. “In a few short weeks, mortgage rates have largely erased the sharp climb traversed in October. Nevertheless, the cost of borrowing remains high. Except for the most recent seven weeks, today’s rate is the highest since 2000.”
The Mortgage Bankers Association (MBA) reported a 4% increase in the volume of mortgage applications for home purchases for the week ending November 17, on a seasonally adjusted basis.
Notably, the share of home loans backed by the Federal Housing Administration (FHA) rose to 14.8% from 14.4% the previous week. The average loan size for purchase applications dropped to $403,600, the lowest since January 2023.
“This is consistent with other sources of home sales data showing a gradually increasing first-time homebuyer share,” commented Joel Kan, MBA’s deputy chief economist.
Amidst the tight supply market, many first-time buyers are looking towards new construction. October saw a 1.9% monthly increase in new residential construction, reaching 1.372 million units, which exceeded expectations.
However, the market remains challenging, with mortgage application volume 20% lower than the same period last year, according to MBA. The NAR report indicates that the current market is more accessible to higher-income households, with the median salary of homebuyers rising from last year’s $88,000 to $107,000.
Brandi Snowden, director of consumer survey research at NAR, told Yahoo Finance, “Among our first-time homebuyers we saw that their household income rose nearly $25,000 just from the previous year. They might be needing to add that extra income just to be able to get into the homeownership market.”
While the Federal Reserve has maintained its benchmark interest rate between 5.25% to 5.5% in recent months, Fed Chair Jerome Powell indicated that further rate hikes are possible to control inflation.
Higher interest rates pose additional challenges for the housing market, as many homeowners are reluctant to sell and lose their current low mortgage rates. Data from Redfin shows that over 80% of homeowners with mortgages have rates below 5%, and about a quarter have rates below 3%.
However, Lawrence Yun, NAR’s chief economist, expressed optimism during the 2023 NAR NXT conference, saying, “I believe we’ve already reached the peak in terms of interest rates. The question is when are rates going to come down [more]?”
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