Freddie Mac Chief Economist: “New data indicate inflationary pressures are receding” – which, along with lower mortgage rates, may lure more homebuyers into the market.
JONESBORO, Ga. – Mortgage rates have fallen for three straight weeks, with the 30-year fixed rate averaging 7.44% Thursday, down from 7.5% a week earlier, according to Freddie Mac.
But the rate remains well above last year’s level – 6.61%.
Why did the rate go down this week? “New data indicate that inflationary pressures are receding,” said Sam Khater, Freddie Mac’s chief economist.
The government reported Nov. 14 that consumer prices climbed 3.2% in the 12 months ended in October, decelerating from 3.7% in September.
“The combination of continued economic strength, lower inflation and lower mortgage rates should likely bring more potential homebuyers into the market,” Khater said.
Housing sales slump
But so far this year, high mortgage rates have stifled sales.
Existing-home sales slid 2% in September from August, according to the National Association of Realtors (NAR). Sales retreated 15.4% from a year ago.
“As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” said NAR Chief Economist Lawrence Yun.
But with inventory limited, demand has been strong enough, despite the mortgage rate increase, to push home prices higher. The median existing-home price registered $394,300 in September, up 2.8% from $383,500 a year earlier.
“Lack of inventory is providing the support for high prices, but it’s also making it super difficult for first-time buyers to enter the housing market,” Yun noted.
Yun expects the depressed state of sales to last through year-end, with home sales dropping 18% for 2023 as a whole. That comes after a 17% decline last year.
Light at the end of the tunnel?
But things are starting to look up on the supply side. The inventory of unsold existing homes climbed 2.7% in September from August to 1.13 million. That’s the equivalent of 3.4 months’ supply at the current monthly sales pace. Six months is typically considered a balanced market.
“Builders are back on their feet, up 5% in newly constructed home sales year to date,” Yun said. “Builders can simply create inventory. In a housing shortage environment, builders are really benefiting.”
And mortgage rates may have topped out. Many economists believe inflation is falling enough to keep the Federal Reserve from raising rates again.
“I believe we’ve already reached the peak in terms of interest rates,” Yun said. “The question is when are rates going to come down?”
He forecast mortgage rates will slide to 6%-7% by the spring buying season and anticipates that more sellers will then enter the market.
Still, if you’re a renter who wants to buy, you might want to hold off until housing prices correct. For many, mortgage payments are just too high for a house to be affordable. The rule of thumb is that no more than 28% of your income should be needed to pay a mortgage.
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