Mortgage rates dipped below 7% for the first time since August after the Federal Reserve set the stage for rate cuts in the coming year.
Officials at Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 6.95%, down from the week prior’s 7.03%. A year ago at this time, the 30-year FRM averaged 6.31%.
It is now down nearly 90 bps in the last six weeks. This lowers the monthly mortgage payment for a $400,000 house to $2,118, down $183 from recent peaks.
The 15-year fixed rate, on the other hand, rose to 6.38%% from 6.29%. A year ago, it averaged 5.54%.
“Potential homebuyers received welcome news this week,” said Sam Khater, Freddie Mac’s Chief Economist.
“Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year.”
The FOMC laid out a plan for three 2024 rate cuts at its December meeting. The news emboldens analysts who expect rates under 7% through the new year. Redfin predicts rates to fall to the mid-6%s in the first half of 2024, while Realtor.com’s 2024 Housing Forcast suggests mortgage rates will ultimately clock in at 6.5% by this time next year.
While this all bodes well for homebuyers, it may not translate to a complete market turnaround. Inventory remains tight, keeping competition and home prices elevated.
Plus, while Americans are correcting their rate expectations, many still hope to lock in a rate closer to 5% in the future. In a survey conducted in September, three-quarters of respondents said they are “not willing to accept” a mortgage rate above 5.5%.
Though that dream seems out of reach, housing professionals may also be hoping for that kind of major decline after the scarcity of 2023.
“I told my team, ‘the moment rates dip below 5% again, even if it’s 4.99%, cancel your vacation, because we’re going to have the hottest market we’ve had in years,’” Ken Baris, CEO of Berkshire Hathaway Home Services in Livingston, NJ, told Mansion Global.
Still, lenders have seen an immediate reaction to the cooldown, primarily in refinances.