Housing market thaw underway as mortgage rates drop deeper into 6% region

Mortgage rates dropped lower into 6% territory, luring homebuyers off the sidelines and back into the housing market, according to Freddie Mac.

The average 30-year fixed-rate mortgage was 6.67% for the week ending Dec. 21, according to Freddie Mac's latest Primary Mortgage Market Survey. That's a decrease from the previous week when it averaged 6.95%. A year ago, the 30-year fixed-rate mortgage averaged 6.27%. 

The average rate for a 15-year mortgage was 5.95%, down from 6.38% last week and up from 5.69% last year. 

The continued drop in mortgage rates below the 7% mark has been a welcome relief for many homebuyers after 17 consecutive weeks of climbing rates. Lower rates are just one piece of the affordability challenge homebuyers have faced this year. 

A lack of housing supply has meant that home prices have continued to climb despite limited demand. However, that also looks to be improving too. Single‐family housing starts in November were at a rate of 1.14 million, which is 18% above the revised October figure of 969,000. The Mortgage Bankers Association is forecasting a 6% increase in existing home sales and a 10% jump in new home sales in 2024, fueled by more inventory coming on the market and slightly lower mortgage rates, according to a statement.

"The 30-year fixed-rate mortgage remained below seven percent for the second week in a row, a welcome downward trend after 17 consecutive weeks above seven percent," Freddie Mac Chief Economist Sam Khater said "Lower rates are bringing potential homebuyers who were previously waiting on the sidelines back into the market and builders already are starting to feel the positive effects. 

"A rise in homebuilder confidence, followed by new home construction reaching its highest level since May, signals a response to meet heightened demand as current inventory remains low," Khater continued.

Homebuyers can find the best mortgage rate by shopping around and comparing 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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After months of forecasting a higher-for-longer stance, Federal Reserve officials are now predicting rate cuts could come as early as next year, with the federal funds rate expected to tick down to 4.6% in 2024, according to the central bank's updated economic forecasts in its Summary of Economic Projections (SEP).

Federal Reserve Chair Jerome Powell said that the federal funds rate could be scaled back to 3.6% by the end of 2025 and 2.9% by year-end 2026 if the economy evolves as projected. However, Powell reiterated the central bank's commitment to bring inflation to a 2% target rate and did not close the door on further rate increases if inflation increased again.

While the prospect of lower interest rates has helped stabilize mortgage rates and boost more single-family home building in November, the return to a more balanced housing market will take time, according to Voxtur Analytics Chief Operating Officer Jordan Ross. 

"The era of record high-interest rates will end in the New Year, as the Fed will cut rates to help keep the economy from slowing down too much," Ross said. "However, looking at housing starts from earlier this week, it will be many months before homebuilders can create more inventory to help ease high home prices. We expect the average mortgage rate through 2024 to settle somewhere around the 6% mark, which isn't that far from where we are today."

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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With home prices still high and housing inventory limited, finding an affordable home could continue to be a challenge. The median listing price in the U.S. was 37.7% higher than pre-pandemic in November, while for-sale inventory was 34% lower, according to Realtor.com Senior Economic Research Analyst Hannah Jones.

"The housing market remains under-supplied, which will keep upward pressure on prices, especially as buyer demand picks up," Jones said. "Prospective buyers have adjusted to today’s challenging environment by focusing on affordable metros. We expect to see considerable sales and price growth in many low-priced metros next year. Would-be buyers may also find relief in the rental market, with rents falling annually for the seventh month in a row in November."

Realtor.com recently released the top 100 ranking metros for 2024 that include affordable markets in the Northeast and Midwest such as Toledo, Ohio and Rochester, New York, alongside Southern California markets, like the Los Angeles and San Diego areas, that are expected to rebound from 2023's sluggish sales.

If you are looking to take advantage of the current mortgage rates by refinancing your mortgage loan or are ready to shop for the best rate on a new mortgage, consider visiting an online marketplace like Credible to compare rates and get preapproved with multiple lenders at once.

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