Declining mortgage rates offer some buyers a sliver of hope as they face the ‘insurmountable wall’ of still-high prices

As winter sets in, temperatures are dropping — and so are mortgage rates. But even with that cooling effect, rates remain more than double last year’s.

And it’s causing buyers and sellers alike to hesitate before pulling the trigger on a move.

“Today’s mortgage rates are keeping homebuyers and sellers in a defensive stance,” says George Ratiu, manager of economic research at Realtor.com.

Ratiu notes that the monthly mortgage payment for a median-priced home is $2,000 — a whopping 64% jump from a year ago.

“First-time homebuyers are struggling with high consumer prices, property values and interest rates, which are pushing savings rates to very low levels and delaying their ability to gather a sufficient down payment,” he says.

“At the same time, current homeowners looking for their next home are finding that the prospect of higher prices and, in many cases, double or triple their current interest rate, are causing them to rethink their decision to move.”

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30-year fixed-rate mortgages

The average 30-year fixed-rate is 6.27%, slightly down from last week when the rate was at 6.31%, Freddie Mac reported Thursday.

At this time a year ago, the 30-year home loan was only 3.05%.

“Rates have declined significantly over the past six weeks, which is helpful for potential homebuyers, but new data indicates homeowners are hesitant to list their homes,” says Sam Khater, Freddie Mac’s chief economist.

“Many of those homeowners are carefully weighing their options as more than two-thirds of current homeowners have a fixed mortgage rate of below 4%.”

15-year fixed-rate mortgages

The average 15-year fixed rate actually increased to 5.69%, compared to the previous week’s rate of 5.54%. Last year, the rate was at 2.30%.

Story continues

Existing home sales plunged 37% in November from January’s high, “as buyers were confronted with the insurmountable wall of still-high housing costs and surging interest rates,” writes Ratiu.

“November’s unseasonably warm weather across large swaths of the country, combined with mortgage rates which dropped from a peak of 7.08% early in the month to around 6.6% by the end, may have offered a reprieve to home shoppers looking for the right opportunity.”

“However, even as listing prices continued their retreat from the summer’s record-highs, affordability remained a central challenge for November buyers,” he says.

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Consumer confidence rises — but Americans still unlikely to buy

Americans are now more confident in the economy, due to slowing inflation and an excellent November jobs report, according to recent data from The Conference Board, a nonprofit business think tank.

The group’s survey revealed consumer confidence in the U.S. hit an eight-month high in December, but demand for big purchases like homes has dropped.

“Vacation intentions improved but plans to purchase homes and big-ticket appliances cooled further,” says Lynn Franco, senior director of economic indicators at The Conference Board.

“This shift in consumers’ preference from big-ticket items to services will continue in 2023, as will headwinds from inflation and interest rate hikes.”

Mortgage applications rise for a second week

Mortgage applications increased 0.9% from the previous week, according to the Mortgage Bankers Association (MBA).

“This is a particularly slow time of year for homebuying, so it is not surprising that purchase applications did not move much in response to lower mortgage rates,” says Mike Fratantoni, senior vice president and chief economist at the MBA.

However, refinance activity surged by 6% as homeowners sought out savings on their monthly payments with lower mortgage rates.

“The latest data on the housing market show that homebuilders are pulling back the pace of new construction in response to low levels of traffic, and we expect this weakness in demand will persist in 2023, as the U.S. is likely to enter a recession,” says Fratantoni.

“However, if mortgage rates continue to trend down, as we are forecasting, more buyers are likely to return to the market later in the year, as affordability improves with both lower rates and slower home-price growth.”

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