Mortgage rates dropped for the fourth consecutive week, indicating they may have peaked and convincing some homebuyers to trickle back to the market.
The average rate on the 30-year fixed mortgage declined to 7.29% from 7.44% the week prior, according to Freddie Mac on Wednesday. That marks a half-point decline since the end of October, when the rate hit 7.79%.
The recent rate relief was enough to pull some buyers from the sidelines — even entry-level ones who had been priced out. Still, home prices and rates remain elevated as the inventory chokehold continues, crushing affordability.
“The Freddie Mac fixed rate for a 30-year mortgage eased further this week, as mixed data continue to keep investors guessing,” Danielle Hale, Realtor.com chief economist, said. “In a few short weeks, mortgage rates have largely erased the sharp climb traversed in October. Nevertheless, the cost of borrowing remains high. Except for the most recent seven weeks, today’s rate is the highest since 2000.”
First-time buyers navigate the market
The volume of mortgage applications for a home purchase increased 4% on a seasonally adjusted basis for the week ending Nov. 17, the Mortgage Bankers Association (MBA) reported Wednesday.
The share of home loans backed by the Federal Housing Administration, or FHA — a popular financing option for first-time homebuyers — increased to 14.8% of all loan applications from 14.4% the prior week. The average loan size for a purchase application was $403,600, the lowest since January 2023.
“This is consistent with other sources of home sales data showing a gradually increasing first-time homebuyer share,” Joel Kan, MBA’s deputy chief economist, said in a press release.
Many first-time buyers are also turning to new construction in the supply-constrained market. The number of new residential construction increased 1.9% monthly to 1.372 million units in October on a seasonally adjusted basis, beating expectations.
But that is far from enough, as demand heavily outweighs supply. The volume of mortgage applications is 20% lower than the same week a year ago, MBA says.
The expensive market has shut out many moderate-income households, giving chances to only higher-income households with a median salary of $107,000, an uptick from last year’s $88,000, a report by National Association of Realtors (NAR) shows.
“Among our first-time homebuyers we saw that their household income rose nearly $25,000 just from the previous year,” Brandi Snowden, director of consumer survey research at NAR, told Yahoo Finance. “They might be needing to add that extra income just to be able to get into the homeownership market.”
While the Federal Reserve has kept its benchmark interest rate between 5.25% to 5.5% in September and October due to moderated inflation, Fed Chair Jerome Powell said more rate hikes are possible if that’s what it takes to bring inflation down to the central bank’s 2% target.
Read more: What the Fed rate-hike pause means for mortgage rates and loans
Higher rates would only complicate the housing market because many homeowners are not selling their homes because they don’t want to lose their current low mortgage rate. Just over 4 in 5 homeowners with mortgages have an interest rate below 5%, and roughly one-quarter have a rate below 3%, Redfin previously reported.
But one expert believes mortgage rates may have already peaked.
“I believe we’ve already reached the peak in terms of interest rates,” Lawrence Yun, NAR’s chief economist, said during the 2023 NAR NXT conference. “The question is when are rates going to come down [more]?”
