A brief 'window of opportunity' is now open for homebuyers as mortgage rates fall, but experts warn of a 'longer term war that is not yet over'




A brief ‘window of opportunity’ is now open for homebuyers as mortgage rates fall, but experts warn of a ‘longer term war that is not yet over’
A brief ‘window of opportunity’ is now open for homebuyers as mortgage rates fall, but experts warn of a ‘longer term war that is not yet over’  

While turkey and pies were significantly more expensive this Thanksgiving season, Americans do have something to be thankful for: Mortgage rates are continuing to slide.

Borrowing costs first plunged after October's encouraging inflation data revealed consumer prices rose by 7.7% in October - slower than economists predicted.

But don't celebrate just yet. Many experts still believe more Fed rate hikes could swing average mortgage rates back up into the 7% range in the coming weeks.

"Home shoppers this year have had to contend with nearly 3x the mortgage rate volatility of a typical year. With the inflation and economic outlook continuing to evolve and the Fed continuing to observe and react, volatility may very well worsen before it begins to improve," writes Danielle Hale, chief economist at Realtor.com.

"Markets have interpreted October inflation data to mean that the Fed has won. However, Fed decision makers have made it clear that they view this victory (one month's inflation data) as one battle in a longer term war that is not yet over."

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30-year fixed-rate mortgages

The average 30-year fixed-rate mortgage has dipped to 6.58%, Freddie Mac reported Wednesday. Last week, the 30-year rate averaged 6.61%, and a year ago, it was at 3.10%.

This drop in rates could provide a "window of opportunity" to buyers trying to save on their monthly payments, says George Ratiu, manager of economic research at Realtor.com.

"Following generally higher mortgage rates throughout the course of 2022, the recent swing in buyers' favor is welcome," writes Ratiu.

"It could save the buyer of a median-priced home listing more than $100 per month relative to what they would have paid when rates were above 7% just two weeks ago."

15-year fixed-rate mortgages

The average 15-year fixed home loan also slid from 5.98% last week to 5.90% this week. A year ago at this time, the 15-year rate averaged 2.42%.

Despite the lower rates, many buyers may still remain priced out of the housing market.

"A long-term housing shortage is keeping home prices high, even as the number of homes on the market for sale has increased, and buyers and sellers may find it more challenging to align expectations on price when the cost of financing is fluctuating so much," says Ratiu.

"A cooling rental market, in which rent growth is moving back toward historical norms, may offer hesitant homebuyers a refuge from which to regroup and perhaps reevaluate their plans in the new year."

Rental growth has slowed for the ninth month in a row, according to Realtor.com, with the median asking rent in the country's 50 largest metropolitan areas dropping to $1,734.

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Rapidly slowing market breaks more records

Pending sales plunged over 32% in October compared to the same time last year, marking the biggest decline on record, according to Redfin's latest monthly report.

And almost 60,000 home-purchase agreements fell through - a record 17.9% of deals that went under contract.

Nearly a quarter of homes for sale experienced a price cut as well, double last year's rate.

"The Fed's actions to curb inflation are causing the housing market to slow at a pace not seen since the financial crisis," says Redfin economics research lead Chen Zhao.

"There are already early but promising signs that inflation is cooling, which caused mortgage rates to drop last week. If that progress continues, buyers who recently backed out of deals may return to the market and sellers may be less inclined to slash their prices."

However, the Fed has said more rate hikes may be on their way - though they may not be as aggressive as previous increases - which could kick mortgage rates up yet again.

Mortgage applications continue to rise

Mortgage applications have climbed another 2.2% from last week, according to the Mortgage Bankers Association (MBA).

"The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year," says Joel Kan, vice president and deputy chief economist at the MBA.

While refinance activity picked up 2% from the previous week, it's still 86% lower than at this time last year.

What to read next

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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