The U.S. housing market has seen a significant boost as mortgage rates plummeted to their lowest levels in seven months, fueling a resurgence in buyer and seller activity. According to Freddie Mac, the average rate for a 30-year loan dropped to 6.60% from 6.66% the previous week, marking the lowest rate since May 2023 when it was around 6.57%. This decrease represents a nearly 120 basis point reduction from the near-8% rates seen in October.
Sam Khater, Freddie Mac's Chief Economist, notes, "This is an encouraging development for the housing market and, in particular, first-time homebuyers who are sensitive to changes in housing affordability." However, he cautions that the thawing purchase demand continues to strain the already scarce inventory of homes for sale.
This shift in mortgage rates has led to a 10% increase in mortgage applications, as reported by the Mortgage Bankers Association (MBA). The surge includes an 11% rise in refinance applications and a 9% increase in purchase applications. Joel Kan, MBA's Vice President and Deputy Chief Economist, expresses cautious optimism, suggesting that home purchases may pick up in the coming months if rates continue to ease.
Despite the rise in mortgage applications, there's a 20% year-over-year decrease in unadjusted seasonal purchase application activity, highlighting the still-present challenges in the market.
The decline in mortgage rates has also prompted more homeowners to list their properties, alleviating some of the market gridlock experienced throughout 2023. Redfin data indicates that the share of homeowners with mortgages below 6% has decreased to 89% from a record high of 93% in mid-2022. This suggests that some homeowners are willing to trade their lower rates for potentially higher ones amid changing market conditions.
Lily Katz, Redfin's data journalist, explains that the reasons for selling vary, with some homeowners driven by life events like divorce, while others are motivated by a desire for a change in residence or location.
The uptick in home listings, as reported by Zillow, indicates that 21% of homeowners are considering selling in the next three years, a notable increase from 15% a year ago. This increase in inventory, combined with the retreat in mortgage rates, presents a window of opportunity for potential homebuyers.
Heather Mahmood-Corley, a Redfin agent, advises house hunters to start making offers now, citing a more balanced market with lower interest rates and more listings, but less competition. However, the market is already witnessing a resurgence in bidding wars, with some homes receiving as many as 20 to 30 offers.
Lisa Sturtevant, Chief Economist for Bright Multiple Listing Service, cautions that while falling rates are positive for buyers, the market remains challenging. Inventory levels are historically low, and a surge in listings is not anticipated. This supply-demand imbalance is expected to keep home prices elevated. She predicts that home prices will continue to rise, albeit at a slower pace than in previous years.
In summary, the current dip in mortgage rates has reinvigorated the U.S. housing market, drawing more buyers and sellers into the fray. However, challenges such as low inventory and high home prices remain, requiring buyers to navigate a competitive and dynamic market landscape.
