After a grueling summer of dashed hopes, home shoppers can let out a sigh of relief.
The average rate on a 30-year fixed-rate mortgage fell to 6.33% this week, Freddie Mac indicated in a Thursday report. Over the last four weeks, mortgage rates have declined three-quarters of a point — marking the largest drop since 2008.
“Mortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth,” Sam Khater, chief economist at Freddie Mac, said in this week’s Primary Mortgage Market Survey.
The recent downturn reverses a protracted period of hikes in mortgage rates and could make home purchases more affordable for prospective buyers. Throughout the summer months of 2022, rate hikes, stemming from the Federal Reserve’s aggressive fight against soaring inflation, have added hundreds of dollars to the typical borrower’s monthly payment.
Higher housing costs have dampened affordability for working Americans, who are already cash-strapped, leading to a slump in the US real estate market as sales fall and new home construction slows.
While mortgage rates are still twice as high as they were at this time a year ago, and remain at risk of further increases, housing experts forecast that they may have finally reached a pinnacle.
“We think we’re now past the peak on mortgage rates,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, told Market News International this week.
With mortgage rates downtrending from over 7% witnessed in October, a December report from real estate brokerage Redfin shows that more prospective buyers are returning to the housing market. According to the company’s Homebuyer Demand Index, as of December 7th, mortgage-purchase applications were up 4% from the prior week, equating to a slight 1.5% increase from the same time period the previous month.
There is a flip side to the latest slide in mortgage rates, however. Data from Redfin shows that price drops are becoming less common as rates continue to trend lower. The brokerage found that during each of the four weeks ending on November 27, just over 6% of homes for sale had a price drop — marking the lowest level since July.
“There have been a handful of pieces of relatively good news for the housing market lately, but we’re far from out of the woods,” Taylor Marr, deputy chief economist at Redfin, wrote in the report. “Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down.”
Indeed, the housing market is especially vulnerable to the Federal Reserve’s behavior. Comments made by Chairman Jerome Powell last week on the likeliness of smaller interest-rate hikes that “may come as soon as the December [Fed] meeting” resulted in a rally in the 10-year Treasury bond price and a drop in yield to its lowest rate in more than two months. As the average rate on a 30-year mortgage closely correlates with long-term Treasury yields, rates continued their descent this week.
“The housing market is the most interest-rate sensitive segment of the economy, and the impact rates have on homebuyers continues to evolve,” Khater said in a statement.
This article was written by Alcynna Lloyd from Business Insider and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to email@example.com.