A sharp drop in mortgage interest rates in December may have given an early boost to this year's spring housing market. Rates are about a percentage point lower than in October, and consumers expect them to drop even further.
Optimism about mortgage rates rose sharply in December, according to a monthly survey of consumers by Fannie Mae. For the first time since the survey was launched in 2010, more net homeowners believe rates will go down rather than up, according to Mark Palim, deputy chief economist at Fannie Mae.
“This significant shift in consumer expectations comes on the heels of the recent bond market rally,” Palim said. “In particular, homeowners and higher income groups reported greater optimism about rates than renters.”
The average rate on the 30-year fixed rate has been skyrocketing since the start of the Covid pandemic. It hit more than a dozen record lows in 2020 and 2021, below 3%, sparking a historic run on home buying and a sharp rise in prices, then more than doubling in 2022. Rates reached a high of over 20 years in October. 2023, hovering around 8% before falling back below 7% in December. However, rates are still double what they were three years ago.
Ryan Paredes (R) and Ariadna Paredes look at a home shown to them by Ryan Ratliff, a real estate sales associate with Re/Max Advance Realty, on April 20, 2023 in Cutler Bay, Florida.
Joe Raedle | Getty Images News | fake images
Buyers are coming back. Washington, D.C.-area real estate agent Paul Legere hosted two open houses over the weekend (homes in the $1.1 million to $1.2 million price range) and said they were the busiest I had experienced in the last year.
“Similar report from my co-worker,” he added. “Even on Saturday, during a torrential rain, we both had over 10 groups of active buyers. These were people who had been in the market and had slowed down or suspended their search and are coming back, seriously looking for a new property.”
looking for inventory
Legere said he expects to see “an injection” of inventory in the next week or two. Tight inventories have helped keep prices higher, another hurdle for potential homebuyers.
“Homeowners have told us repeatedly lately that high mortgage rates are the main reason it's a bad time to buy and sell a home, so a more positive outlook on mortgage rates may [incentivize] some to put their homes up for sale, which helps increase the supply of existing homes in the new year,” Palim said.
A recent report from Redfin, a national real estate brokerage, found that demand began to recover in December as rates fell. The Redfin Home Buyer Demand Index, a seasonally adjusted measure of requests for tours and other home buying services by Redfin agents, rose 10% from the previous month to its highest level since August , according to the report. Pending sales, which measure contracts signed on existing homes, fell 3% from December 2022, but it was the smallest drop in two years.
Much will depend on both interest rates and home prices in the coming months. Prices continue to rise due to lack of supply, and if rates continue to fall, price gains could accelerate. The lower the rate, the more potential homebuyers can afford.
While mortgage rates are expected to continue falling, that will depend on the strength of the economy and inflation.
“Rate momentum is only as good as the economic data trajectory. So if the data continues to do what it's been doing, there's no reason rates can't go down to 5, possibly even 4 if some of those talking “The bosses are right about the recession in 2024,” Matthew Graham, chief operating officer of Mortgage News Daily, said on CNBC's “The Exchange.”
The average 30-year fixed mortgage rate hit a recent low of 6.61% in late December, but has risen slightly this month to 6.76%, according to Mortgage News Daily.
