Mortgage Rates Decline, Encouraging Home Buyers and Sellers

Mortgage Rates Decline, Offering Relief to Home Buyers

This week, mortgage rates have once again decreased, providing much-needed relief to prospective home buyers and encouraging more sellers to consider entering the market. According to a report from Freddie Mac, the average rate for 30-year fixed mortgages has dropped to 6.35 percent, down from 6.46 percent the previous week. This marks the lowest average since May 2023.

Despite the gradual decrease in borrowing costs witnessed over the past few months, there is a prevailing belief that a substantial surge in housing market activity may not occur until the Federal Reserve announces a reduction in interest rates. Mortgage rates reached a peak of nearly 7.8 percent late last year, following the Fed’s aggressive policy rate hikes aimed at combating a significant rise in inflation. Recently, Fed Chair Jerome H. Powell indicated that the “time has come” for a shift in policy, signaling that a reduction in rates is imminent.

After maintaining the central bank’s policy rate at its highest level in over two decades for more than a year, Fed officials are widely anticipated to announce a cut during their meeting scheduled for mid-September. These expectations have contributed to a decrease in market-based yields in government bond markets, which directly influence mortgage rates.

Despite the current decline in mortgage costs, rates remain about twice as high as they were three years ago, when the average 30-year rate hovered around 3 percent. Sam Khater, Freddie Mac’s chief economist, commented on this trend, stating, “Rates are expected to continue their decline, and while potential home buyers are watching closely, a rebound in purchase activity remains elusive until we see further declines.”

Interestingly, easing mortgage rates seem to have already stimulated some activity in the market. Recent data from the Census Bureau revealed that new home sales surged by more than 10 percent last month, exceeding economists’ expectations. However, prices for new homes have remained relatively stable, while existing-home prices have continued to rise. This phenomenon is attributed to “incentives offered by builders to encourage sales, as well as a trend toward building smaller homes,” according to analysts at Oxford Economics.

These analysts predict that the overall growth in home prices, which has been around 5 percent year over year, may slow to about 3 percent by the end of the year. Although lower mortgage rates are expected to generate increased demand from buyers, this increase in demand may be tempered by a higher supply of homes for sale, which could help to limit upward pressure on prices.

Many homeowners have felt a sense of being locked into their low-rate existing mortgages and have chosen to keep their properties off the market, reluctant to enter the buying arena themselves.