The average long-term U.S. mortgage rate fell for the fourth consecutive week and has dropped more than three-quarters of a point since hitting a 20-year high last month. This fourth week in a row of declines is leaving prospective buyers hopeful for sustained low rates throughout spring homebuying season.
Mortgage buyer Freddie Mac reported Thursday that the average on the benchmark 30-year rate dipped to 6.33% from 6.49% last week. A year ago, the average rate was 3.1%.
The average long-term rate sat at 7.08% in early November but has since had the steepest 4-week decline since 2008.
“Though week-to-week rate changes can move up and down, the longer-term prospect on rates is for further improvement, with a clear possibility of going under 6% by year’s end,” the National Association of REALTORS® Chief Economist Lawrence Yun said of the change. “With lower rates, more homebuyers will steadily appear. That is why it is critical to ensure more housing supply to help meet the recovering demand.”
Locally we have now seen “Small” bidding wars happening for well-priced properties. Most of these have been under $1,000,000 and have ranged from Woodinville/Bother to Snoqualmie Ridge and down to Kent. One listing in North Bend listed at $1,250,000 will close north of $1.3 million.
Still, mortgage rates are more than double what they were a year ago, mirroring a sharp rise in the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including global demand for U.S. Treasurys and investor expectations for future inflation, which heighten the prospect of rising interest rates overall.
The Federal Reserve, which has been hiking its short-term lending rate since March in a bid to crush the highest inflation in decades, raised its rate again early this month by 0.75 percentage points, three times its usual margin, for a fourth time this year. Its key rate now stands in a range of 3.75% to 4%.
Spring Real Estate Market Finally Arrives
Markets rallied last week after Fed Chair Jerome Powell signaled that the Fed may increase its key interest rate by just a half-point at its December meeting. Rate increases could then fall to a more traditional quarter-point size at its February and March meetings, based on previous Fed forecasts. Powell said the Fed will likely have to keep rates elevated for longer than originally planned, as inflation has eased somewhat but remains way above the central bank’s 2% target.
The sharp rise in mortgage rates this year, combined with still-climbing home prices, have added hundreds of dollars to monthly home loan payments relative to last year, when the average rate on a 30-year mortgage barely got up above 3% much of the time.
That’s created a significant affordability hurdle for many would-be homebuyers, spurring this year’s housing market downturn. Sales of previously occupied U.S. homes fell for the ninth consecutive month in October, hitting the slowest pre-pandemic annual sales pace in more than 10 years.
The rate for a 15-year mortgage, popular with those refinancing their homes, slipped to 5.67% from 5.76% last week. It was 2.38% one year ago.
"Mortgage rates continue to trend down entering the traditional spring homebuying season. Unfortunately, those in the market to buy are facing a number of challenges, not the least of which is the low inventory of homes for sale, especially for aspiring first-time homebuyers." – Sam Khater, chief economist at Freddie Mac
To that point, the housing inventory is still tight. Many sellers remain on the sidelines as they hold onto a mortgage with a much lower rate than what's currently available. If this month's mortgage rate relief causes another bump in demand, buyers may find a more competitive market than previously expected. And if mortgage rates continue to drop further in 2023, as forecast, the inventory crisis could last well beyond the spring homebuying season.
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