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Illustration by Lanette Behiry/Real Estate News; Shutterstock

Mortgage rates creep down, but not enough to tempt buyers 

Mortgage apps dropped this week even as rates fell, but pending sales began to show signs of life.

March 28, 2024
3 minutes

Key points:

  • 30-year mortgage rates averaged 6.79% this week, falling slightly after rising the week prior.
  • Mortgage applications were down as well, suggesting that borrowing costs and overall affordability remain challenging.
  • Pending sales were up, however, indicating "slow and steady progress from the lows of late last year."

Mortgage rates inched down this week, but so did mortgage applications, as affordability continues to be a barrier for many buyers.

Meanwhile, pending home sales rose in February, providing some hope for the spring.

The 30-year fixed-rate mortgage averaged 6.79% according to Freddie Mac, down just slightly from last week's 6.87%.

"Mortgage rates moved slightly lower this week, providing a bit more room in the budgets of some prospective homebuyers," said Sam Khater, Freddie Mac's chief economist. "We also are seeing encouraging data on existing home sales, which reflects improving inventory."

Affordability issues may continue to keep buyers on the sidelines

Even with the dip in rates, borrowers seemed unmoved by the incremental improvement as the Mortgage Bankers Association reported a 0.7% drop in volume for loan applications.

"Mortgage application activity was muted last week despite slightly lower mortgage rates," said Joel Kan, MBA's vice president and deputy chief economist.

"Purchase applications were essentially unchanged, as homebuyers continue to hold out for lower mortgage rates and for more listings to hit the market," he said. "Lower rates should help to free up additional inventory as the lock-in effect is reduced, but we expect that will only take place gradually, as we forecast that rates will move toward 6 percent by the end of the year."

Meanwhile, homebuyer affordability declined in February, according to the MBA's Purchase Applications Payment Index (PAPI).

The national median payment for home purchase applications last month rose to $2,184 from $2,134 in January, according to PAPI.

"Challenging affordability conditions and low housing supply are keeping some prospective homebuyers on the sidelines this spring," said Edward Seiler, MBA's associate VP for housing economics and executive director of the Research Institute for Housing America.

"The eventual, expected decline in rates in the coming months will hopefully spur new activity in the housing market," Seiler said.

First signs of a spring awakening in pending home sales?

In a more upbeat sign, NAR reported that pending home sales increased 1.6% last month.

"While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year," said NAR Chief Economist Lawrence Yun. "Ongoing job gains are clearly increasing demand along with more inventory."

Though the monthly change was positive, pending sales were still down 7% from last year.

And the gains were not felt nationwide, with sales rising in the Midwest and South, but falling in the Northeast and West regions.

"The high-cost regions in the Northeast and West experienced pullbacks due to affordability challenges," Yun said "Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers."

But Yun expects new home building will fuel improvements: "There will be a steady rise in inventory from recent growth in home building," he said. 

"Additionally, many sellers, who delayed listing in the past two years, will begin to put their homes on the market to move to a different home that better fits their new life circumstances — such as changes in family composition, jobs, commuting patterns and retirees wanting to be closer to their grandkids."  

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