A sharp drop in mortgage interest rates in December may have kicked off this year's spring housing market early. Prices are down about a full percentage point from where they were in October, and consumers expect they will fall even further.
Optimism about mortgage rates rose sharply in December, according to Monthly consumer survey by Fannie Mae. For the first time since the survey was launched in 2010, more homeowners on Net Belief rates will fall rather than rise, according to Mark Ballem, deputy chief economist at Fannie Mae.
“This major shift in consumer expectations comes on the heels of the recent rise in the bond market,” Ballem said. “It is noteworthy that homeowners and higher-income groups reported greater optimism about rates than renters.”
The 30-year fixed average has been on a wild ride since the start of the Covid pandemic. More than ten record lows were recorded in 2020 and 2021, less than 3%, causing a historic surge in home purchases and a sharp rise in prices, rising to more than double in 2022. Prices reached their highest level in more than 20 years. In October. 2023, hovering around 8% before falling to less than 7% in December. However, prices are still double what they were three years ago.
Ryan Paredes (right) and Ariadna Paredes look at a home shown to them by Ryan Ratliff, a real estate sales associate with Re/Max Advance Realty, on April 20, 2023 in Cutler Bay, Florida.
Joe Rydell | Getty Images News | Getty Images
Buyers are coming back. Washington, D.C., area real estate agent Paul Legere hosted two open houses over the weekend — homes priced between $1.1 million and $1.2 million — and said they were the busiest he'd seen in the past year.
He added: “A similar report from my co-worker.” “Even on Saturday, during heavy rain, we had more than 10 groups of active shoppers. These are people who were in the market and slowed down or stopped their search and came back actively looking for a new property.”
Looking for inventory
Legere said he expects to see a “pump” of inventory in the next week or two. Tight inventory has helped keep prices high, another hurdle for potential homebuyers.
“Homeowners have repeatedly told us recently that higher mortgage rates are the main reason why it is a bad time to buy and sell a home, so a more positive outlook for mortgage rates may… [incentivize] “Some are listing their homes for sale, which helps increase the supply of existing homes in the new year,” Ballem said.
A recent report from Redfin, a national real estate brokerage, found that demand began to rise in December as interest rates fell. The Redfin Home Buyer Demand Index — a seasonally adjusted measure of requests for tours and other home buying services from Redfin agents — rose 10% from last month to reach its highest level since August, according to the report. Pending sales, which measure signed contracts on existing homes, fell 3% from December 2022, but that was the smallest decline in two years.
Much will depend on interest rates and housing prices in the coming months. Prices continue to rise due to supply shortages, and if prices continue to fall, price gains may accelerate. The lower the rate, the more potential home buyers there will be.
While mortgage interest rates are expected to fall further, this will depend on the strength of the economy and inflation.
“Rate momentum is only as good as the trajectory of economic data. So, if the data continues to do what it's been doing, there's no reason why interest rates can't fall to Level 5, and maybe even as high as Level 4 if some of the talk continues,” said Matthew Graham, chief operating officer at Level 5. Mortgage News Daily, on CNBC's The Exchange: “Presidents are right about a 2024 recession.”
The average interest rate on a 30-year fixed mortgage reached a recent low of 6.61% at the end of December, but has risen slightly this month to 6.76%, according to Mortgage News Daily.
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