Big rate drop could mean flurry of Thanksgiving home sales
Mortgage rates took a dive this week, experiencing the largest one-week decline in a year.
- The 30-year fixed-rate mortgage fell more than a quarter point, coming in at 7.5%.
- It’s a significant decline after rates topped 8% in October, and it could drive end-of-year buyer activity.
- More homebuyers are locking in rates, with mortgage applications rising 2.5% this week.
The fever of rising mortgage interest rates has finally broken, providing some relief to homebuyers looking for an end-of-year purchase.
The 30-year fixed-rate mortgage averaged 7.5% this week, down from 7.76% the week before, according to the latest Freddie Mac survey. It's the biggest one-week drop since last November, when rates began significantly retreating.
The 15-year rate followed a similar pattern, falling from 7.03% to 6.81%.
The decline was influenced by data showing household debt rising, along with a slowing job market and wages, said Sam Khater, Freddie Mac's chief economist.
Sidelined buyers may be ready to jump in
The mortgage rate market is now looking similar to last year — but today's consumers have adjusted their expectations and may be more willing to pounce, said Lisa Sturtevant, chief economist at Bright MLS.
"Many buyers are pressing on and will act quickly when they see rates dip. There could be a flurry of buyer activity before the Thanksgiving holiday as buyers opportunistically jump on relatively lower rates," Sturtevant said.
There are also signs that rates could continue to slide, at least in the short term. Mortgage News Daily put the rate for Nov. 8 at 7.41%.
Some homebuyers are already locking in at the lower rate. The Mortgage Bankers Association reported that applications increased 2.5% from the week before.
"Applications for both purchase and refinance loans were up over the week but remained at low levels. The purchase index is still more than 20% behind last year's pace, as many homebuyers remain on the sidelines until more for-sale inventory becomes available," said Joel Kan, MBA's deputy chief economist.
Rates likely to remain elevated
Despite this week's big drop, many real estate economists expect rates to remain high for some time. Sturtevant predicts rates will come down more in 2024 but still settle above 6%.
Jiayi Xu, an economist from Realtor.com, noted that a rate hike from the Federal Reserve is still on the table if inflation, which is currently at 3.7%, does not move closer to the 2% target.
"Investors are likely to exercise caution in their positioning, and the expectations for rates to stay steady to slightly higher remains," Xu said.
Affordability a barrier
While some buyers may take advantage of falling rates, affordability challenges will keep many others on the sidelines.
Housing affordability worsened in the third quarter, with families now spending 26.8% of their income on mortgages, up from 25.3% last spring and 23.5% a year ago, according to the National Association of Realtors.