Mortgage rates have just taken their biggest plunge since 1981 - but analysts say the market is 'not out of the woods yet'

Mortgage rates have just taken their biggest plunge since 1981 – but analysts say the market is ‘not out of the woods yet’

Mortgage rates have just taken their biggest plunge since 1981 – but analysts say the market is ‘not out of the woods yet’

Mortgage rates fell their biggest weekly decline in four decades after new data suggested inflation could start to subside.

Consumer prices rose 7.7% in October – a slower pace than economists expected – and the average rate on a 30-year fixed mortgage fell back below 7% soon after the announcement of last week.

“Some buyers may want to wait and see if rates drop even lower,” says George Ratiu, head of economic research at Realtor.com.

“However, with inflation still north of 7% and the Fed committed to continue raising the funds rate over the next few months, the mortgage market is not out of the woods. We could still see rates bounce back above 7% before the end of the year.”

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30 Year Fixed Rate Mortgages

At 6.61%, the average 30-year fixed-rate mortgage is currently a far cry from the previous week’s rate of 7.08%, Freddie Mac reported Thursday.

At this time last year, the 30-year rate averaged 3.10%.

“Mortgage rates fell this week on incoming data suggesting inflation may have peaked,” said Sam Khater, chief economist at Freddie Mac.

“Although lower mortgage rates are good news, there is still a long way to go for the housing market. Inflation remains high, the Federal Reserve is expected to keep interest rates high, and consumers will continue to feel the impact.

Mortgage rates previously topped 7% after the Fed raised the key rate by 0.75 percentage points – and more rate hikes are expected, which would further weigh on mortgage rates.

(Freddie Mac also notes that it has changed its weekly mortgage reporting methodology – the housing giant now uses mortgage application data instead of surveying lenders, and it will no longer issue updates. for 5-year variable rate mortgages.)

15-year fixed rate mortgages

The 15-year fixed rate mortgage is also down from last week, when it averaged 6.38%. It is now at 5.98%.

A year ago, the 15-year fixed mortgage averaged 2.39%.

Despite last week’s rate cut, many homebuyers are still locked out of the housing market, notes Nadia Evangelou, senior economist for the National Association of Realtors.

“At 7%, 1 in 8 renters can afford to buy the house at the median price. By contrast, nearly one in three renters could afford to buy the home at the median price a year earlier, when rates were close to 3%,” says Evangelou.

“Thus, around 7.9 million tenants can no longer afford to buy standard housing, while at the same time, the share of first-time buyers has reached a new record.”

Read more: Trade while the market is down: Here are the best investing apps to take advantage of “once in a generation” opportunities (even if you’re a beginner)

Homebuilder sentiment is at its lowest in a decade

Builder confidence for new single-family homes saw its 11th consecutive monthly decline in November, according to the National Association of Home Builders (NAHB).

It fell five points to 33, marking its lowest reading since 2012 – except for spring 2020, the early days of the pandemic.

“Rising interest rates have significantly weakened demand for new homes as buyer traffic becomes increasingly scarce,” said NAHB President Jerry Konter.

“With the housing sector in recession, the Biden administration and the new Congress must focus on policies that reduce the cost of construction and allow the nation’s homebuilders to increase housing production.”

Weaker demand has forced builders to find ways to entice buyers into the market, such as lowering prices and paying points for mortgage rate buyouts.

Mortgage applications rise as rates fall

Mortgage applications jumped 2.7% from last week, according to the Mortgage Bankers Association (MBA).

“Application activity, adjusted for the Veterans Day holiday, increased in response to lower rates – driven by a 4% increase in home purchase applications. purchases increased across all loan types, and the average purchase loan fell to its smallest amount since January 2021,” says Joel Kan, MBA vice president and deputy chief economist.

However, refinancing activity is still weak – down a further 2% from the previous week and 88% from the same week a year ago.

“There’s very little incentive to refinance with rates so much higher than last year,” Kan says.

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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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