Homebuying Activity Picks Up As Mortgage Rates Fall

Purchase applications and home tours are on the rise as rates drop to the lowest level in six weeks.

Key points:

• The 30-year fixed-rate mortgage was just under 6.7% this week, the lowest since late October.
• Mortgage applications were up 2.8% from the previous week, as the Purchase Index hit its highest level since January.
• Affordability remains an issue, however, and upcoming economic reports may dictate where rates go next.

Potential homebuyers are getting an early holiday gift as mortgage rates dropped to six-week lows ahead of the December Federal Reserve meeting.

The 30-year fixed-rate mortgage averaged 6.69% this week, according to the latest Freddie Mac survey. That’s down from last week’s 6.81% and is the lowest level since late October.

Where rates go next may depend on how the Federal Reserve views the economy. The committee is scheduled to meet Dec. 17-18 to determine if another interest rate cut is warranted. They will get a chance to see several economic reports — including the jobs report due out on Friday — before making a decision. 

It’s worth noting that the Fed’s previous two cuts this fall did not appear to make a dent in mortgage rates, which are up 60 basis points since the board’s September rate cut.

Applications up, but many buyers are still sidelined

Consumers appear to be responding to declining rates with an end-of-year uptick in activity. Mortgage applications rose 2.8% for the week, according to the Mortgage Bankers Association. The seasonally adjusted purchase index was up 6% from the previous week and is at its highest level since January.

“The recent strength in purchase activity continues, supported by lower rates and higher inventory levels, which are giving prospective buyers more options compared to earlier in the year,” said Joel Kan, MBA’s deputy chief economist.

Who are these late-season buyers? Most likely, they are individuals with relatively high incomes who feel secure in their financial and employment situations, said Lisa Sturtevant, chief economist at Bright MLS.

“Affordability is still a major constraint for moderate-income buyers. With home prices expected to rise and rates projected to remain in the 6’s through 2025, many of those buyers will still be priced out,” Sturtevant said.

Plenty are looking at houses

Meanwhile, more people are touring homes and keeping an eye on what’s available. Redfin’s Homebuyer Demand Index, which is a measure of tours and other buying services, continues to climb and is near its highest level since September 2023.

Renewed buyer demand may be due in part to post-election confidence — uncertainty about the outcome led some buyers to pause their searches in the late summer and fall — and the realization that rates aren’t likely to drop much in the near future, said Mimi Trieu, a Redfin Premier agent in the San Francisco Bay Area.

“They are also noticing there are not many desirable, move-in ready homes for sale that are priced reasonably, so they’re pushing forward and negotiating for good deals. Homes that have been sitting on the market since the summer or early fall are finally selling,” Trieu said.

Source: Real Estate News

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