Suddenly, mortgage rates are falling

ConsumerAffairs

How far do they have to fall to improve home affordability?

After rising to nearly 8% in October, mortgage rates are falling. Over the last two weeks, the 30-year fixed-rate mortgage rate has fallen to 7.03%. Since the October high, rates have fallen 69 basis points, the fastest rate since the 2008 housing market crash.

“The 30-year fixed-rate mortgage averaged near 7% last week, down from nearly 7.80 percent just six weeks ago,” said Sam Khater, Freddie Mac’s chief economist. “When rates began to rapidly drop, purchase applications rebounded initially, but this improvement in demand diminished in the last week. Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand.”

If so, how far do rates have to drop before affordability improves and buyers return to the market? Desiree Avila, a board-certified Realtor with CRR Fort Lauderdale, says buyers appear to be recovering from the shock of high interest rates and may be ready to buy if rates keep falling.

“I think in the range of the low 7’s, high 6’s can spur spending,”Avila told ConsumerAffairs. “Current rates have not deterred buyers completely, many are finding a way to make it work.”

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For example, some buyers have resigned themselves to taking out a high-interest mortgage with a plan to refinance the loan when rates fall. Some buyers are buying down points for a time to reduce the up-front rate. 

There’s still pent-up demand

Avila says there continues to be pent-up demand. If rates continue to fall it could “unleash” a flurry home home-buying. 

“Over the next six months, I am hopeful we will dip into the 6’s,” Avila said. “This would mean reversing a year of interest rate hikes, so I don’t think it will be in the low 6’s, but the high 6’s.

A drop in home prices might also help buyers get back into the market but so far this year, there is little evidence of that. In spite of 8% mortgage rates, the National Association of Realtors (NAR) reports the median home price in October was $391,800, a 3.4% increase over October 2022.

Total housing inventory at the end of October was 1.15 million units, up 1.8% from September but down 5.7% from one year ago. 

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