Homebuying demand dries up even as mortgage rates drop: Freddie Mac

Mortgage rates continued their steady decline as the 30-year mortgage slipped to nearly 7%, but buyers are feeling less enthusiastic, according to Freddie Mac.

The average 30-year fixed-rate mortgage was 7.03% for the week ending Dec. 7, according to Freddie Mac's latest Primary Mortgage Market Survey. That's a decrease from the previous week when it averaged 7.22%. A year ago, the 30-year fixed-rate mortgage averaged 6.33%. 

The average rate for a 15-year mortgage was 6.29%, down from 6.56% last week and up from 5.67% last year. 

The rate shift over the last month brought some buyers back into the fray, but a lack of affordable inventory continues to challenge the housing market. That scenario is not likely to change until rates take a meaningful turn downwards or enough to entice existing homeowners to list their properties, according to Freddie Mac.

"The 30-year fixed-rate mortgage averaged near 7 percent this week, down from nearly 7.80 percent just six weeks ago," Freddie Mac Chief Economist Sam Khater said. "When rates began to rapidly drop, purchase applications rebounded initially, but this improvement in demand diminished in the last week. 

"Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand," Khater continued.

Homebuyers can find the best mortgage rate by shopping around and comparing your options. You can visit an online marketplace like Credible to compare rates, choose your loan term, and get preapproved with multiple lenders at once.

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Mortgage rates are expected to continue downward if the Federal Reserve holds steady with its monetary policy. The Fed has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% to slow the economy and lower soaring inflation. In October, inflation rose 3.2%, down from 3.7% growth last month – evidence that rising prices are moderating.

With mortgage rates finally decreasing, affordability will likely return to the market, enticing some buyers back. Next year, the typical monthly purchase cost for the median-priced home listing is expected to be slightly less than $2,200 monthly, down from $2,240 this year, according to Realtor.com.

"While Fed Chair Powell stated last Friday that it was too early to conclude that the current monetary policy is restrictive enough to tame inflation down to the 2% target, the cooling October job openings data, a measure of labor demand, released on Tuesday, boosted investors' confidence that the Federal Reserve was probably done with rate hikes," Realtor.com Economist Jiayi Xu said in a statement. "Looking ahead, we predict that sustained improvement in inflation will bring the mortgage rate down to 6.5% by the end of 2024. 

"Nonetheless, as mortgage rates stay elevated, ongoing high housing costs indicate that the cooling trend in the nationwide housing market is likely to persist," Xu continued.

If you're looking to become a homeowner, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.

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A record 86% of Americans think now is a bad time to buy a home, according to Fannie Mae's recent Home Purchase Sentiment Index (HPSI). Survey respondents cited high home prices and mortgage rates as the primary reasons why it's the wrong time to buy.

The HPSI decreased by 0.6 points in November to 64.9, remaining within the range of the low-level plateau it reached in the first half of 2023.

"Over the past year, the HPSI has plateaued at a low level, evidence of persistent consumer pessimism regarding the state of the housing market," Fannie Mae Senior Vice President and Chief Economist Doug Duncan said.

"The combination of persistent affordability challenges and less rosy household finances remain the primary drivers of the low-level plateauing of housing sentiment," Duncan said. "Even if mortgage rates decline over the next year, which we currently expect, it's unlikely to meaningfully affect affordability." 

If you are interested in taking out a mortgage, you can use an online marketplace to compare your options. Visit Credible to compare multiple lenders at once and choose the one with the best option for you.

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