In a welcome development for prospective homebuyers, mortgage rates have fallen for the fifth consecutive week, providing a slight reprieve in a market grappling with high rates and limited housing inventory. According to the latest data released by Freddie Mac on Thursday, the average rate on the widely used 30-year fixed mortgage dipped from 7.29% to 7.22%, contributing to a cumulative drop of over half a percentage point since the end of October. Despite this decline, rates have yet to fall below 7% for more than three months.
Mortgage Bankers Association (MBA)
The decrease in mortgage rates has prompted a modest increase in purchase applications, with a 5% rise on a seasonally adjusted basis for the week ending November 19, as reported by the Mortgage Bankers Association (MBA). However, overall purchase activity remains nearly 20% lower than the same period last year.
Analysts suggest that the trajectory of mortgage rates may hinge on the Federal Reserve’s actions regarding inflation. Orphe Divounguy, senior macroeconomist at Zillow Home Loans, noted that if core inflation and economic activity continue to moderate, mortgage rates could stabilize. However, uncertainties remain, as Divounguy cautioned that higher-than-expected wage growth in November, as indicated in next week’s employment report, could lead to a resurgence in yields.
Adriana Perezchica, president of Via Real Estate Group, highlighted that financial uncertainty, coupled with the perception of high rates, has deterred many potential buyers. Despite the recent increase in purchase applications, resistance persists among buyers, with concerns about high rates impacting their daily expenses.
Indicating the ongoing challenges buyers face
The ongoing challenge of low housing supply further complicates the real estate landscape. Homeowners, reluctant to trade up and lose their current low rates, contribute to the limited availability of existing homes. This scarcity has elevated home prices, maintaining tight affordability. Lawrence Yun, chief economist at the National Association of Realtors (NAR), emphasized that limited housing inventory remains a significant hindrance to fully satisfying housing demand.
Even with the decline in mortgage rates, sales of previously owned homes slumped in October, while home prices continued to rise. The median home price increased by 3.4% year-over-year to $391,800, reaching the highest level for the month of October.
Additionally, sales of newly built homes were impacted as some buyers postponed their plans due to rising rates. Homebuilder confidence hit its lowest point in a year, marking the fourth consecutive monthly drop in sentiment. Rising rates, inching closer to 8%, have contributed to concerns about the affordability of monthly mortgage payments.
Despite efforts to inform clients about potential benefits, such as concessions for closing costs and the opportunity to refinance in the future, buyers remain resistant. The national median payment applied by purchase applicants increased in October, indicating the ongoing challenges buyers face in navigating the current real estate landscape.