No New Year's fireworks as mortgage rates stabilize
Interest rates were nearly flat in the first week of 2024, ticking up slightly after nine weeks of declines.
- With economic data meeting expectations at the end of 2023, 30-year mortgage rates continue to sit around 6.6%.
- Potential rate cuts later this year could push mortgage rates downward.
- Even so, it’s still a tough market for buyers with low inventory and rising home prices.
With economic data showing few surprises at the end of 2023, mortgage interest rates appear to be stabilizing.
The 30-year fixed-rate mortgage averaged 6.62% last week, up just a tick from last week's 6.61%, according to the latest Freddie Mac survey. It was the first weekly rise in nine weeks, but the rate is still around its lowest level since May 2023 and only slightly higher than it was a year ago when rates averaged 6.48%.
The 15-year fixed-rate mortgage averaged 5.89%, down from last week's 5.93%. Last year at this time, it was 5.73%.
With the Federal Reserve expected to cut rates later this year, mortgage rates should drift downward, said Sam Khater, Freddie Mac's chief economist.
"While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise," Khater said.
And that environment is forcing first-time buyers to hold off on making a home purchase, said Lisa Sturtevant, chief economist at Bright MLS.
"Young buyers are having to delay buying a home as it takes them longer to save for a down payment and they often have to make offers on multiple homes before they are successful," Sturtevant said.
That reluctance is showing up in surveys. In a report released last year, Realtor.com found that 12% of prospective buyers said they need rates to fall below 6%, and 28% said they would need rates to fall before 4%, before they could enter the market. And the latest Fannie Mae Home Purchase Sentiment Index reached an all-time low in November, with just 14% of consumers indicating it was a good time to buy a home.
Mortgage applications slow, but a turnaround may be coming
Although mortgage rates have dropped significantly from their October peak, mortgage applications have declined — another sign that buyers are holding back. The Mortgage Bankers Association reported on Jan. 3 that applications decreased 9.4% from two weeks earlier.
While buyers may be wary, the mortgage and new home sectors are feeling more optimistic, and things could start turning around this spring, said Joel Kan, MBA's deputy chief economist. "The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months to come," Kan said.