A sharp drop in mortgage interest rates in December may have kicked-started the spring housing market this year. Rates are a full percentage point lower than they were in October, and consumers expect them to drop further.
Confidence about mortgage rates rose sharply in December, a step up Monthly Consumer Survey by Fannie Mae. For the first time since the survey began in 2010, more homeowners in the net believe rates will fall rather than rise, according to Mark Polim, deputy chief economist at Fannie Mae.
“This significant shift in consumer expectations comes on the back of the recent bond market rally,” said Balim. “In particular, homeowners and higher-income groups reported higher rates of confidence than renters.”
The 30-year stable average rate has been on a wild ride since the start of the Covid pandemic. It hit more than a dozen record lows in 2020 and 2021, below 3%, fueling a historic run in home buying and a sharp rise in prices, more than doubling in 2022. Rates hit a more than 20-year high in October 2023, hovering around 8% before falling below 7% in December. However, the price is more than double what it was three years ago.
Ryan Paredes (R) and Ariadna Paredes look at a home being shown to them by Ryan Ratliff, real estate sales associate with Re/Max Advance Realty, on April 20, 2023 in Cutler Bay, Florida.
Joe Radle | Getty Images News | Good pictures
Buyers keep coming back. Washington, DC-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 his busiest in the past year.
“A similar statement from my colleague,” he added. “Even on Saturday, during the heavy rain, we both had more than 10 groups of active shoppers. These were people who were in the market and came back after slowing down or stopping their search, eagerly looking for a new property.”
Legere said he expects to see “an infusion” of inventory in the next week or two. Tight inventory has helped keep prices high, another deterrent for potential homebuyers.
“Homeowners have told us of late that high mortgage rates are the main reason it's a bad time to buy and sell a home, and there may be a positive mortgage rate outlook. [incentivize] “Some are listing their homes for sale, which helps increase the supply of available homes in the new year,” said Balim.
A recent report from national real estate brokerage Redfin showed that demand began to pick up in December as rates fell. Redfin's Homebuyer Demand Index — a seasonally adjusted measure of requests from Redfin agents for tours and other home-buying services — rose 10% from a month earlier to its highest level in August, according to the report. Pending housing, which measures signed contracts, fell 3% from December 2022, but was the smallest decline in two years.
The coming months will depend on both interest rates and house prices. Prices continue to rise due to a lack of supply, and if rates continue to fall, price gains could accelerate. The lower the price, the more potential home buyers can afford.
Although mortgage rates are expected to fall further, that will depend on the strength of the economy and inflation.
“Rate momentum is well on track with the economic data. So if the data continues to do what it's doing, rates may not go below 5, maybe even as high as 4, some say. Leaders are right about a recession in 2024,” said Mortgage News Daily's chief operating officer. official Matthew Graham said on CNBC's “The Exchange.”
The average rate on a 30-year fixed mortgage fell to 6.61% at the end of December, but is at 6.76% this month, according to Mortgage News Daily.
