Mortgage Rates Hit Lowest Level Since May, Stirring Housing Market Prospects
The housing market has witnessed a notable shift as mortgage rates fell to their lowest point since May. According to Freddie Mac, the rate on the 30-year fixed mortgage dropped to 6.61% this week, marking a continued decline for the ninth consecutive week from a peak of 7.79% in October.
This decline in mortgage rates brings a glimmer of hope for potential homebuyers, albeit tempered by the persisting challenge of limited housing inventory. Keith Gumbinger, vice president of HSH.com, notes that lower rates might lead to an early surge in prices in 2024, potentially offsetting the benefits of these lower rates.
The stability in mortgage rates this week mirrors the 10-year Treasury yield, hovering around 3.9% following the Federal Reserve's decision to maintain its benchmark rate in December. Moreover, the Fed's indication of possible rate cuts in 2024 has led to optimistic forecasts from the National Association of Realtors (NAR) and Realtor.com, predicting average rates of 6.3% and 6.8%, respectively, for the next year.
The recent dip in rates hasn't yet sparked a significant response from homebuyers, common during the holiday season. However, this trend might change with the arrival of the new year. Gumbinger anticipates a robust response from potential buyers if rates remain favorable.
The current mortgage landscape shows that a significant proportion of homeowners enjoy rates below 4% and are less inclined to sell. Yet, November witnessed a 7.5% increase in newly listed homes compared to last year, suggesting a gradual shift in seller behavior.
Jeffrey Ruben, president of WSFS Mortgage, points out the imbalance between available homes and buyer demand. Although there's been a modest improvement in inventory, it's still far from meeting the market demand.
Signs of market revival are subtly emerging. November saw an uptick in existing home sales for the first time in five months. Lawrence Yun, NAR’s chief economist, believes more activity could ensue in the resale market with continued rate reductions. Similarly, refinance applications and new home purchases have seen increases in recent weeks.
Despite these positive signs, a significant recovery in the housing market might take a few months. Contract signings, for instance, typically take one to two months to translate into completed sales.
The inventory of unsold existing homes remains low, contributing to a persistent rise in home prices. The median sales price for previously owned homes climbed 4% year-over-year to $387,600 in November. This price increase, coupled with a 1.7% decrease in unsold inventory, indicates a market still skewed in favor of sellers.
In summary, while the recent drop in mortgage rates offers some relief, the housing market faces ongoing challenges due to limited inventory and rising prices. The outlook for 2024 hinges on the interplay between mortgage rates, buyer demand, and housing supply.