Mortgage rates fell for the third straight week, triggering a slight rebound in homebuyer activity.
The rate on the average 30-year fixed mortgage declined to 6.49% this week from 6.58% the previous week, according to Freddie Mac. Rates have fallen more than a half-point in the last three weeks as inflation appears to be cooling and the Federal Reserve signals it may pull back on its aggressive interest rate hikes.
The drop in rates rekindled some activity in the mostly cooled housing market with buyers using the slight relief in rates coupled with more yielding sellers to make deals. Still, with rates nearly 4 percentage points higher than at the start of the year, affordability challenges remain for many first-time buyers.
“Buyers have gained purchasing power to the tune of about $25,000 to $30,000 per loan application, which is fantastic,” Scott Sheldon, branch manager at New American Funding, told Yahoo Money. “However … rates aren’t low enough for buyers to say, ‘Oh my gosh, I need to go put an offer on a house and get locked immediately.’ That sense of urgency is just not there.”
Buyers gain confidence
As mortgage rates dropped, more buyers rushed to secure the dip before the window closed.
Demand for mortgages grew for the third straight week, according to the Mortgage Bankers Association’s latest survey, with purchase applications up 4% from a week ago.
“There’s still demand for houses,” Jason Sharon, owner and broker of Home Loans Inc., noted despite higher home prices and rates. “There’s always going to be situational moves, people crossing states to go to college, or be closer to their jobs.”
In addition to the dip in rates, buyers are also capitalizing on sellers who are more willing to negotiate as demand dried up this year.
The share of homes with a price reduction increased to 19.6% this month, versus 9.2% a year ago. According to Realtor.com, that’s now well above the pre-pandemic levels.
“Buyers are taking the time to negotiate,” Adriana Perezchica, president of Via Real Estate Group, told Yahoo Money. “The decline in rates means some clients have gained back some purchasing power and they want to take advantage of that.”
Still, housing affordability remains a problem overall, especially for first-time buyers, Mike Fratantoni, chief economist and senior vice president of research and industry technology for the MBA told Yahoo Money, noting purchase activity remains down 41% year over year.
At current rates, the buyer of a median-price home is facing a $2,150 monthly payment. According to Realtor.com, while it’s an improvement from just a couple of weeks ago when that figure was about $2,300, that would still take up approximately 40.6% of the monthly income of a household earning the median of $72,000.
“Most buyers this year had sticker shock,” Fratantoni said.
