Mortgage rate drops — is it enough to entice potential buyers?
The average 30-year fixed-rate mortgage rate was 6.61% on Nov. 17, down nearly half a point from last week, suggesting that inflation may have peaked.
- While elevated compared to last year, it’s a significant drop from its 7.08% peak earlier this month.
- Some economists believe the decline will pull potential buyers back into the market — unless the rate ticks up again.
The drop in mortgage interest rates this week may bring an uptick in real estate activity, but it's expected to be short-lived as inflation remains elevated.
Freddie Mac reported in its weekly survey that the 30-year fixed-rate mortgage averaged 6.61%, a significant drop from earlier this month when it averaged 7.08%.
The lower rate suggests that inflation may have peaked, said Sam Khater, Freddie Mac's chief economist.
"While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact," Khater said.
Still, the drop is big enough that potential buyers might decide to jump in and lock in a mortgage before rates have a chance to go up again, said Rich Sharga, executive vice president of market intelligence at ATTOM.
"In the short term, it's likely to have more of an impact on new home sales than existing home sales, simply because the former can be executed more quickly," Sharga said in an email. "But if rates hold where they are — or perhaps even drop slightly — we could see people try to take action and move on a purchase, even though sales are usually a bit slower this time of year."
While sellers are taking some steps, like reducing prices, to meet buyers where they're at, the volatility of interest rates might continue to keep buyers on the sidelines, said George Ratiu, senior economist at Realtor.com. Buyers are also dealing with the impact of inflation, Ratiu said, noting that credit card balances jumped at the highest rate in more than 20 years.
"Buyers may hesitate if they find the erratic nature of current interest rates disconcerting," Ratiu posted on Twitter.
Ratiu added that the Federal Reserve remains hawkish in its stance to drive down inflation. Currently around 7.7%, inflation is well above the Fed's goal of 2% inflation. So it's possible that Fed actions could push mortgage interest rates back up to 7% by the end of the year.