As mortgage rates fall for a fourth week, experts say homes may soon become affordable again — even if volatility is here to stay
Mortgage rates are continuing their downward trend as investors keep a lookout for more signs of cooling inflation.
“This week, labor cost data provided a ray of hope as it showed that hourly compensation was lower than previously reported in the second and third quarters for all sectors except manufacturing,” writes Danielle Hale, chief economist at Realtor.com, adding that gas prices are also plunging.
Wednesday’s report from the Bureau of Labor Statistics indicated that real hourly wages — which takes into account both wages and consumer prices — actually fell by 2.3% in the third quarter and 4% over the last four quarters.
Hale says the following week’s consumer price index data and the Fed’s next hike to the federal funds rate may provide more clarity as to where the economy is headed.
“This means that mortgage rates may continue on the volatile path seen so far in 2022 that has made it very difficult for buyers to set and maintain a home shopping budget.”
Don’t miss
30-year fixed-rate mortgages
The average 30-year fixed rate continued its downward shift from weeks past, Freddie Mac reported Thursday. The average slid to 6.33%, down from 6.49% the week prior.
A year ago, the 30-year rate was less than half that amount, at 3.10%.
Nadia Evangelou, senior economist for the National Association of Realtors, believes rates will stabilize near 6% next year if inflation continues to slow.
“With a 6% mortgage rate, housing will become more affordable for many buyers. While the typical family cannot currently afford to buy a median-priced home as the qualifying income exceeds earned income, housing will become affordable again for Americans if rates hover near 6%,” she writes.
15-year fixed-rate mortgages
The average 15-year fixed home loan also decreased — from 5.76% last week to 5.67% this week.
This time a year ago, the 15-year rate was at 2.38%.
“Mortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth,” said Freddie Mac chief economist Sam Khater.
“Over the last four weeks, mortgage rates have declined three quarters of a point, the largest decline since 2008. While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.”
Read more: 10 best investing apps for ‘once-in-a-generation’ opportunities (even if you’re a beginner)
Midsize markets expected to see growth
Although experts are forecasting home sales will continue to drop next year as buyers remain wary of high prices and rates, there may be more hope in midsize markets that offer more affordability, such as Louisville and Toledo.
“As housing cost continues to be a major challenge for both buyers and renters alike, affordable midsize housing markets offer a potential refuge that workers with flexible arrangements may continue to seek out,” says Hale.
She adds these markets are home to domestic manufacturing, government, health care and education employers.
“As a result, we expect the top housing markets of 2023 to remain relatively active, even as the number of home sales nationwide is expected to decline.”
Mortgage applications continue to drop
Homebuyer sentiment remains low despite lower rates. Mortgage applications fell 1.9% from last week, according to the Mortgage Bankers Association (MBA).
“Purchase activity slowed last week, with a drop in conventional purchase applications partially offset by an increase in FHA and USDA loan applications,” says Joel Kan, vice president and deputy chief economist at the MBA.
Refinance activity was 5% higher than last week, but still 86% lower than last year.
However, mortgage credit availability improved slightly in November — the first increase in nine months “as lenders continued to navigate a challenging environment brought on by higher rates and a much slower housing market,” says Kan.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
