Mortgage Rate Drop Revives Housing Market Interest

Increased buyer demand is evident in the housing market, possibly triggered by a significant drop in mortgage interest rates in December. Consumers’ optimism about rates has risen, as reflected in a Fannie Mae survey, where more homeowners anticipate a decline in rates rather than an increase. This shift in consumer expectations is attributed to a recent bond market rally.

As reported by real estate agents, buyers are returning to the market, experiencing busy open houses and heightened activity. The positive outlook on mortgage rates may encourage more homeowners to list their properties for sale, potentially increasing the housing supply. Redfin’s Homebuyer Demand Index saw a 10% increase, signaling a surge in demand as rates fell. While pending sales were down 3% from December 2022, it marked the smallest decline in two years. The trajectory of interest rates, influenced by economic data and inflation, will play a crucial role in shaping the housing market in the coming months.

Home Prices Surge as Mortgage Rates Decline

Home prices surged 5.2% nationally in November compared to the previous year, indicating a faster rate of increase, driven by a decline in mortgage rates. This growth accelerated from a 4.7% gain in October. States in the Northeast, particularly Rhode Island (11.6%), Connecticut (10.6%), and New Jersey (10.5%), led the surge. At the same time, some areas, like Idaho, Utah, and Washington, D.C., experienced year-over-year price declines in November.

Despite the ongoing affordability challenges, the sustained strength in home prices highlights significant pent-up demand. Selma Hepp, Chief Economist for CoreLogic, attributed the remarkable strength to pent-up demand driving prices higher, especially in markets facing prolonged inventory shortages exacerbated by the lack of new homes for sale. Although a slight softening of prices is anticipated in the coming year, it largely hinges on supply dynamics. With current low supply levels and increasing demand due to lower mortgage rates, prices are currently expected to maintain an upward trajectory.

Mortgage Demand Grows by Nearly 10% Despite Interest Rate Increase

Mortgage rates experienced a slight increase for the second consecutive week but remained within a range favored by consumers. The Mortgage Bankers Association reported a 9.9% rise in total mortgage applications compared to the previous week. The average interest rate for 30-year fixed-rate mortgages increased to 6.81%, up from 6.76%, although still considerably lower than the peak of around 8% in October. Refinance applications surged by 19% from the previous week and were 30% higher than a year ago, attracting those who can benefit from the market despite being 39 basis points higher than a year ago.

Applications for home purchase loans rose by 6% for the week but were 16% lower than the same week in the previous year. Despite this increase, buyers faced challenges like limited supply and soaring home prices. Real estate agents noted a renewed demand from buyers who had paused their plans due to the previous higher-rate environment. The mortgage market continues to show volatility, and consumer sentiment suggests an expectation of further rate declines, as reported by Fannie Mae. Although rates increased slightly at the beginning of the week, they still hover around the 6% range, with the next economic indicator being the monthly consumer price index release on Thursday, which could impact rates based on inflation concerns.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.