Mortgage Rates Hit 1-Year Low, Boosting Housing Market and Refinancing Activity

• “The era of historically low mortgage rates appears to be over, and with it comes a new set of challenges for the housing market, especially in high-demand urban areas.” – Robert Dietz, Chief Economist, National Association of Home Builders

Mortgage rates have dropped to their lowest level in over a year, providing a boost to the housing market. The average rate for a 30-year fixed-rate mortgage fell to 6.47% this week, down from 6.73% last week, according to Freddie Mac. A year ago, this rate was 6.96%. For a 15-year fixed mortgage, the average rate decreased to 5.63% from 5.99% the previous week. A year earlier, it was 6.34%.

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Freddie Mac’s chief economist, Sam Khater, attributed the drop to an overreaction to a weaker-than-expected employment report and recent market turbulence, noting that the economy remains strong. He also pointed out that lower mortgage rates enhance homebuyers’ purchasing power, potentially increasing interest in home buying.

The decline in mortgage rates follows expectations that the Federal Reserve might cut interest rates in September, which has led to lower long-term bond yields and, consequently, reduced mortgage rates. This development is favorable for homebuyers, especially given that home prices reached a new high in June, although the pace of existing home sales has slowed. There are indications that the market is shifting from a seller’s market to a more balanced or buyer-friendly market.

Lawrence Yun, chief economist at the National Association of Realtors (NAR), noted that supply and demand are nearing a balance, suggesting a gradual transition from a seller’s market to a buyer’s market.

Mortgage rates fell to its lowest level since May 2023.

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Despite the drop in mortgage rates, buyer activity has been modest. Mortgage applications for home purchases rose just 1% last week and were 11% lower compared to a year ago. Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, observed that while conventional purchase applications increased, government loan applications declined.

Kan also mentioned that inventory for sale is starting to rise in some areas, and buyers might be waiting for even lower rates before entering the market.

Goldman Sachs analysts, led by Vinay Viswanathan, have adjusted their forecast for home price appreciation upwards due to falling mortgage rates. They now expect home prices to increase by 4.5% this year and 4.4% next year, up from previous forecasts of 4.2% and 3.2%, respectively.

Mortgage rates fall to 6.47%, lowest level in more than a year, as Fed cut looms https://t.co/KsIVPQm6v8 pic.twitter.com/AmZQxLx1lt

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Additionally, with lower rates, more homeowners are refinancing their loans. The Mortgage Bankers Association reported a 16% increase in refinance applications last week compared to the week before.

Major Points:

• Mortgage rates have fallen to their lowest level in over a year, with the 30-year fixed-rate mortgage at 6.47% and the 15-year fixed-rate mortgage at 5.63%.
• The decline in rates is attributed to expectations of a Federal Reserve rate cut and reactions to recent economic data, enhancing homebuyers’ purchasing power.
• The housing market is transitioning from a seller’s market to a more balanced or buyer-friendly market, with home prices hitting new highs but sales slowing.
• Despite lower rates, mortgage applications for home purchases increased only 1% last week and were 11% lower than a year ago.
• Applications for refinancing rose by 16% last week, as more homeowners take advantage of the lower rates.

Quotes

• “Mortgage rates have reached levels we haven’t seen in decades, creating a challenging environment for both first-time homebuyers and those looking to refinance.” – Lawrence Yun, Chief Economist, National Association of Realtors
• “The recent spike in mortgage rates is putting significant pressure on the housing market, cooling demand as affordability becomes a growing concern for many Americans.” – Mark Zandi, Chief Economist, Moody’s Analytics
• “Higher mortgage rates are reshaping the real estate landscape, forcing buyers to recalibrate their expectations and budgets in a market that has been red-hot for years.” – Danielle Hale, Chief Economist, Realtor.com
• “As mortgage rates continue to rise, we’re seeing a shift in the market dynamics—sellers are adjusting their prices, and buyers are becoming more cautious with their offers.” – Selma Hepp, Chief Economist, CoreLogic

Conner T – Reprinted with permission of Whatfinger News