Falling mortgage rates are pulling buyers back into the housing market

The sharp drop in mortgage interest rates in December could have kicked off this year’s spring housing market. Rates are about a full percentage point lower than in October, and consumers expect them to fall even more.

Optimism about mortgage rates rose sharply in December, according to Fannie Mae’s monthly consumer survey. For the first time since the survey began in 2010, more homeowners online believe rates will go down than up, according to Mark Palimo, Fannie Mae’s deputy chief economist.

“This significant shift in consumer expectations comes on the heels of the recent recovery in the bond market,” Palim said. “In particular, homeowners and higher income groups reported more optimism than renters.”

The average rate on a 30-year fixed has been wild since the start of the Covid pandemic. It hit more than a dozen record lows below 3% in 2020 and 2021, causing a historic surge in home purchases and a surge in prices to more than double in 2022. Rates hit a more than 20-year 2023 high in October, hovering around 8%, before returning below 7% in December. However, rates are still double what they were three years ago.

Ryan Paredes (R) and Ariadna Paredes look at a house shown by Ryan Ratliff, a real estate sales associate at Re/Max Advance Realty, on April 20, 2023 in Cutler Bay, Florida.

Joe Raedle | Getty Images News | Getty Images

Buyers keep coming back. Washington, D.C.-area real estate agent Paul Legere held two open houses over the weekend — homes in the $1.1 million to $1.2 million price range — and said they were the busiest he’s seen in a year.

“Similar message from my associate,” he added. “Even on Saturday, during the torrential rain, we both had over 10 groups of active buyers. They were people who had been in the market and slowed down or put their search on hold and are coming back and seriously looking for a new property.” “

Looking for inventory

Legere said he expects to see an “infusion” of inventory over the next week or two. Low inventory has helped keep prices higher, another hurdle for potential homebuyers.

“Homeowners have repeatedly told us recently that high mortgage rates are the main reason it is not a good time to buy or sell a home, so a more positive outlook for mortgage rates may (motivate) some to put their homes up for sale. to increase the supply of existing houses in the new year,” said Palim.

A recent report from Redfin, a national real estate brokerage, found that demand was starting to pick up in December as rates fell. Redfin’s Homebuyer Demand Index — a seasonally adjusted measure of requests for inspections and other home-buying services from Redfin agents — rose 10% from the previous month to the highest level since August, according to the report. Pending sales, which measure signed contracts for existing homes, fell 3% from December 2022, but that was the smallest decline in two years.

Much will depend on both interest rates and house prices in the coming months. Prices continue to rise due to a lack of supply, and if rates continue to fall, price gains could accelerate. The lower the rate, the more potential home buyers can afford.

While mortgage rates are expected to continue to decline, this will depend on the strength of the economy and inflation.

“Rate momentum is as good as the trajectory of the economic data. So if the data continues to do what it’s been doing, there’s no reason why rates can’t fall into the 5, maybe even the high 4, if some of them are talking.” heads are right about a recession in 2024,” said Matthew Graham, chief operating officer of Mortgage News Daily on CNBC’s “The Exchange.”

The average rate for a 30-year fixed mortgage hit a recent low of 6.61% at the end of December, but rose slightly to 6.76% this month, according to Mortgage News Daily.

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