U.S. Housing Market: Mortgage Rates Fall to Nearly an Eight-Month Low

According to the January 29th Mortgage News Daily (MND) report, the average 30-year fixed mortgage has decreased to 6.88%, marking the lowest rate since July 17th, 2023. Also, this rate is 1.15 percentage points lower than the mid-October 2023 peak at 8.03%.

A 15-year fixed mortgage now stands at 6.29%; a 30-year jumbo mortgage at 7.25%; a 30-year FHA mortgage at 6.17%; and a 30-year VA mortgage at 6.18%. To observe the steady decrease in mortgage rates since October 2023, scroll to the interactive graph, click on “More Charts: 30YR,” and select “1YR.”

Examining the MND daily survey chart below the interactive graph, mortgage rates were at 6.2% one year ago. Therefore, despite the ongoing decline, mortgage rates are still up by 72 basis points year-over-year (YOY), which is a moderately high increase.

“The Fed has done an excellent job of raising rates and moving aggressively to bring down inflation,” said CrossCountry Mortgage VP of Lending Debra Shultz. “It did have a huge impact on the mortgage industry. Funded loan volume decreased over the last two years in the ballpark of 40%.”

According to a January 25th Freddie Mac report, mortgage rates are gradually increasing but remain in the mid-six percent range at 6.69%, a welcomed downward trend after 17 consecutive weeks above seven percent. Because of mortgage rate stabilization, “potential homebuyers with affordability concerns have jumped off the fence back into the market.” Freddie Mac acknowledges inventory concerns but states, “we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace.”

“Rate hikes also impacted affordability, which has many buyers sitting on the sidelines,” said Shultz. “The good news is that conforming rates are already down almost one percent in the past three months. According to Freddie Mac, the average 30-year fixed rate was 7.79% on October 26, 2023. Today, it’s 6.60%.”

Now that mortgage rates have been decreasing for over two months, homebuying demand is showing signs of recovery. According to a January 24th Mortgage Bankers Association (MBA) report, on a seasonally adjusted basis, the Market Composite Index (mortgage application volume) increased by 3.7 percent and the Purchase Index increased by eight percent compared to the prior week. 

Also, over a week, the refinance share of mortgage activity decreased from 37.5 percent to 32.7 percent of total applications, and the adjustable-rate mortgage (ARM) share of activity rose to 6.3 percent of total applications.

“Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity. Conventional and FHA purchase applications drove most of the increase last week as some buyers moved to act early this season,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

The MND Purchase Index vs. 30 Year Fixed chart (select “1YR”) shows the rise of mortgage applications since the week of October 30th, 2023, when applications were at their lowest level since 1995. Select “MAX” at the top of the graph to observe that mortgage applications had been steadily falling since 2022. However, the purchase index has increased from October’s 125.2 to 174.3 over the past few months, although mortgage applications are still down from one year ago. 

What has caused mortgage rates to begin a slow decline? The mortgage rate decrease, as per a December 20th MBA report, is attributed to the Fed’s announcement that the U.S. economy experienced a positive reduction in inflation. Therefore, the FOMC advocated a pivot toward rate cuts with three cuts to the federal funds rate in 2024, along with further rate cuts in 2025–2026.

“The Fed has signaled three rate cuts this year, but some analysts are predicting up to six. When the Fed reduces rates, adjustable-rate products are immediately impacted. This means ARMs should be more favorable in 2024, which benefits consumers,” said Shultz. “It should also lead to lower fixed rates. However, just because the Fed cuts rates 0.25%, doesn’t mean mortgage rates drop by the same 0.25%. Most surveys have rates around 5.875% by the end of 2024.” 

Although mortgage rates have been decreasing, there is still no significant increase in mortgage applications or a surge in pending home sales.

“When rates go down, more people will be buying and refinancing,” said Shultz. “It’s important that every client feels comfortable with their monthly payment at the time of closing in case rates don’t drop as quickly as predicted. Homebuyers should remember that you can always refinance your interest rates, but you can’t refinance your purchase price.”

According to a January 25th Redfin report, inclement weather slowed homebuying activity somewhat during the start of 2024. However, the median U.S. home sale price rose 5.1% during the four weeks ending January 21st, the largest increase since October 2022, with asking prices rising 6.5%, also the biggest increase in over a year.

“In terms of home prices, the Fed rate hikes have not done as much as expected,” said Shultz. “We have an inventory problem in many parts of the country, so buyers are being forced to increase bids, often over the asking price, while absorbing increased payments due to higher rates. The good news is we will see lower rates over the next two years and many buyers will refinance at that time.” 

Also, Redfin stated that pending home sales were down eight percent YOY, the largest decline in four months. Examining the Redfin Weekly Housing Market Data chart (Click the “Pending Sales” tab) reveals that as of December 31st, 2023, pending sales were 53,145. The week ending December 10th, 2023, showed pending sales to be 60,088, a YOY decrease of -5.6%. The week ending November 19th, 2023, showed pending sales to be 68,246, a YOY drop of -5.5%, indicating a steady decrease in the number of pending home sales.

“First-time homebuyers are facing low inventory and high competition as rates drop,” said Shultz. “Buyers who were on the fence are ready to flood the market, which could lead to bidding wars and increased prices.” 

In other words, even though rates have been decreasing, there is not a surge of contracts being signed, although there has been some progress. The number of people searching for homes for sale via Google is up by 18% from last month, although still down 15% YOY.

Another sign that homebuying demand is rising can be seen in the January 23rd National Association of Realtors (NAR) Foot Traffic report, showing that home showings in the U.S. increased by five percent YOY in December, with 453,616 showings, although the pace of showing activity has declined compared to November 2023.

Of course, the YOY rise in home showings also depends on the region, as the South saw a 12% increase, and the Midwest saw a five-percent increase. Showings were down in the Northeast (-5%) and the West (-3%). According to ShowingTime, the number of real estate showings across North America for the week ending January 27th, 2024, rose to 8.0% compared to 2023 at 5.7%.

“The housing market in general has been solid for sellers. A lack of inventory creates a seller’s market and we have been in one for three to four years now,” said Shultz. “Anyone planning on selling in the next couple of years should consider moving up that time frame. As rates drop, inventory will increase, and the market will normalize from a seller’s market to neutral.” 

The bottom line indicates that, although there is not a large increase in homebuying activity, there has been a noticeable uptick, even through December, when the real estate market is typically frozen, resulting in a decrease in the number of new listings as well as the number of contracts being signed. 

With falling mortgage rates, experts forecast an increase in the number of houses listed for sale during 2024, which will significantly impact the U.S. housing market. If housing supply increases, home prices will fall, making affordability a reality for struggling homebuyers.

“I think the spring market is going to pop early. There’s a lot of pent-up buyer demand,” said Shultz. “Sellers should start preparing their homes now and talking with their realtor to get ready to list their homes in late February/early March.”