While turkey and pies are considerably more expensive this Thanksgiving season, Americans have one thing to be thankful for: Mortgage rates continue to fall.
Borrowing costs fell for the first time in October after encouraging inflation data showed consumer prices rose 7.7% in October – slower than economists had forecast.
But don’t celebrate yet. Many experts still believe that more Fed rate hikes could push average mortgage rates back into the 7% range in the coming weeks.
“This year, homebuyers have had to contend with nearly 3 times the volatility of mortgage rates in a typical year. As inflation and the economic picture continue to evolve, and as the Fed watches and reacts, volatility could get much worse before it gets better,” writes Danielle Hale, chief economist at Realtor.com.
“Markets interpreted the October inflation data as the Fed’s win.” However, Fed policymakers have made it clear that they see this victory (one month of inflation data) as one battle in a long-term war that is far from over.
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30 year fixed rate mortgage
The average 30-year fixed-rate mortgage fell to 6.58%, Freddie Mac said Wednesday. Last week, the 30-year rate averaged 6.61%, compared to 3.10% a year ago.
George Ratiu, Realtor.com’s manager of economic research, says falling interest rates could create a “window of opportunity” for buyers trying to save on their monthly payments.
“After generally higher mortgage rates through 2022, recent changes in favor of buyers are welcome,” Ratiu writes.
“That could save a median home buyer more than $100 a month over what they would have paid just two weeks ago when rates were above 7%.”
15 year fixed rate mortgage
The average 15-year fixed home loan also fell to 5.90% this week from 5.98% last week. At this time a year ago, the 15-year rate averaged 2.42%.
Despite low rates, many buyers may still be priced out of the housing market.
“A long-term housing shortage is keeping home prices high despite an increase in the number of homes on the market, and buyers and sellers with highly variable financing costs may have a harder time adjusting price expectations. ”, says Ratiu.
“A cooling rental market, with rent growth moving toward historic norms, could offer hesitant homebuyers a haven to regroup and perhaps reconsider their plans in the new year.”
Rent growth slowed for the ninth straight month, with the median asking rent in the nation’s 50 largest metropolitan areas falling to $1,734, according to Realtor.com.
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A rapidly slowing market is breaking more records
According to Redfin’s latest monthly report, pending sales fell more than 32% in October compared to the same period last year, reaching a record high.
And almost 60,000 home sales contracts fell through – a record 17.9% of all contracts closed.
Nearly a quarter of homes for sale also saw price reductions, which is more than double last year’s rate.
“The Fed’s measures to curb inflation are causing the housing market to slow at a pace not seen since the financial crisis,” said Chen Zhao, Redfin’s head of economics research.
“There are already early but encouraging signs that inflation is cooling, which led to a drop in mortgage rates last week. If this trend continues, buyers who recently abandoned deals may return to the market and sellers may be less inclined to drop prices.
However, the Fed has signaled that more rate hikes may be on the way — though they may not be as aggressive as previous hikes — which could push mortgage rates up again.
Mortgage applications continue to grow
According to the Mortgage Bankers Association (MBA), mortgage applications rose another 2.2% compared to last week.
“The decline in mortgage rates should improve the purchasing power of potential home buyers, who have been largely left out as mortgage rates have more than doubled in the past year,” said Joel Kahn, vice president and deputy chief economist at MBA.
While refinancing activity is up 2% from the previous week, it is still 86% lower than this time last year.
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