A house and a downward facing arrow.
Illustration by Lanette Behiry/Real Estate News

Mortgage rates flirt with the 7% mark, could drop further 

It’s the sixth straight week of declines, coinciding with signals that the economy is cooling.

December 7, 2023
3 minutes

Key points:

  • The 30-year fixed-rate mortgage averaged 7.03% this week, according to the Freddie Mac survey.
  • A weaker-than-expected jobs report suggests that the economy, and possibly inflation, is slowing — but home equity growth remains strong.
  • Mortgage application activity has increased in recent weeks, with refinance applications up year-over-year.

Mortgage interest rates are poised to drop below the 7% mark for the first time in four months as economic data continues to show a cooling trend.

The 30-year fixed-rate mortgage averaged 7.03% this week, according to the latest Freddie Mac survey. That's down from 7.22% a week ago and continues a streak of six straight weeks of declines. The 15-year fixed-rate mortgage is also tumbling, landing at 6.29% this week.

The drop in rates coincides with data suggesting that the economy is cooling, specifically, the latest jobs report that showed fewer job openings than expected. This should translate into a slowing inflation rate — and discourage the Federal Reserve from raising interest rates further.

While the recent decline has been significant — rates have fallen more than 75 basis points in just six weeks — mortgage rates are not expected to fall dramatically in 2024, ending next year at around 6.5%, said Realtor.com Economist Jiayi Xu.

"As mortgage rates stay elevated, ongoing high housing costs indicate that the cooling trend in the nationwide housing market is likely to persist," Xu said.

Even with some relief in interest rates, affordability challenges will continue to keep many potential homebuyers on the sidelines. A new Redfin report found that the typical homebuyer in 2023 needed to earn an annual income of at least $109,868 if they wanted to spend no more than 30% of their earnings on monthly housing payments for a median-priced home. That's an 8.5% increase compared to 2022.

Mortgage application activity picks up

The recent drop in interest rates has led to a jump in mortgage applications, according to the Mortgage Bankers Association. Overall applications increased 2.8% compared to the week before, while the unadjusted purchase index jumped 35% in one week. It still remains 17% below levels from a year ago, however. Refinance activity increased year-over-year, suggesting a possible turnaround. 

"The overall level of refinance applications is still very low, but recent increases could signal that 2023 was the low point in this cycle for refinance activity, consistent with our originations forecast," said Joel Kan, MBA's deputy chief economist.

Rate volatility not an issue for existing homeowners

While elevated interest rates have stymied buyers, those who already own a home have continued to build equity, according to a new home equity report from CoreLogic. 

The average U.S. homeowner with a mortgage gained about $20,000 in equity year-over-year in the third quarter. On a regional basis, Hawaii (up $63,600 year-over-year) led the way, followed by California (up $51,300) and Massachusetts (up $44,600). Texas (down $9,000) and New York (down $8,000) lost equity for the same time period.

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