Mortgage Rates Nudge Up to 6.66%, Affordability in Focus
This week marks the second consecutive rise in mortgage rates, as the 30-year fixed-rate mortgage average climbed to 6.66%, up slightly from 6.62% the previous week. Despite this increase, rates are still notably lower than last year's peak of 7.79%, according to Freddie Mac data. This current rate offers a measure of relief for homebuyers navigating one of the least affordable housing markets in recent memory.
Sam Khater, Freddie Mac’s chief economist, notes that while mortgage rates have stabilized in the mid-six percent range recently, the slight uptick in rates has marginally boosted homebuyer demand. However, tight inventory and rising prices continue to outpace income growth, posing significant affordability challenges.
Khater advises potential homebuyers to explore state and local resources, like down payment assistance programs, to help manage closing costs. It's important to note that the average mortgage rate is based on applications from borrowers with a 20% down payment and excellent credit, so individual rates may vary.
On the broader economic front, inflation remains a key concern. The end of 2023 saw a cooling in inflation, a positive response to the Federal Reserve's aggressive rate hikes aimed at controlling it. The core Personal Consumption Expenditures price index, a preferred inflation measure by the Fed, showed a slowdown to 3.2% year-on-year in November, moving closer to the Fed's 2% target.
December’s Consumer Price Index report, however, indicated a persistent inflationary trend, with US consumer prices rising 3.4% annually. Mortgage rates, which often align with the yield on 10-year US Treasuries, are influenced by a mix of market expectations, Federal Reserve actions, and inflation perceptions.
Economists like Jiayi Xu from Realtor.com anticipate that mortgage rates will continue their downward trajectory if inflation shows sustained improvement. This potential decline in mortgage rates is expected to positively impact the housing market, potentially leading to increased inventory. However, Xu cautions that the pace of rate declines and the subsequent increase in new listings may be gradual.
The housing market's current dynamics are shaped by the dual challenges of limited inventory and rising home prices. A downward trend in mortgage rates could encourage more listings, but with approximately two-thirds of existing mortgages bearing rates below 4%, many homeowners might delay selling in hopes of even lower future rates.
This scenario underscores the interconnected nature of mortgage rates, housing market dynamics, and broader economic trends, highlighting the need for potential buyers and sellers to stay informed and adaptable in an ever-evolving market landscape.
