Mortgage Rates Just Hit a 4-Month Low, but Do Homebuyers Even Notice—or Care?

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Mortgage rates are down again this week, which means things are looking up for homebuyers.

The average rate for a 30-year fixed-rate mortgage ticked down 2 basis points to 6.13%, according to Freddie Mac, continuing a pattern of rates seesawing lower since topping 7% in the fall. In fact, mortgage rates are at their lowest levels since mid-September 2022.

Yet, while lower borrowing costs are a boon for homebuyers, few seem to be pouncing on this opportunity as they might have a year or two earlier.

“As we move into the new year, housing market data continues to suggest that buyers are relatively sluggish as the total number of homes for sale climbs higher and homes spend more days on market,” noted Realtor.com® Chief Economist Danielle Hale in her analysis for the week ending Jan. 21. “After unprecedented urgency to find and close on a home in 2021 and 2022, buyers in today’s housing market are clearly operating under a different set of expectations and a much greater measure of patience.”

We’ll look at why homebuyers aren’t moving on this mortgage rate reprieve with more gusto—and what it might mean for homebuying this year—in this installment of “How’s the Housing Market This Week?”

Why mortgage rates are falling

The further mortgage rates dip, the less of a fluke these lower rates appear to be. And for this, we can thank easing inflation.

“This is the first time after nearly two years that the inflation rate is finally lower than it was the previous year,” explains Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors®.

As a result, she predicts, “Mortgage rates may fall even further in the following weeks as investors expect the Federal Reserve to take a smaller rate hike in February.”

Lower inflation rates might spell good news not just for mortgage rates, but also for home prices (more on that next).

An era of more ‘normal’ price gains?

For the week ending Jan. 21, listing prices were 7.3% higher than this same week last year. While still up, this would be considered a more “normal” price gain than the frothiness of the COVID-19 pandemic period, when prices were expanding week after week by double digits.

In fact, December 2022, with its median listing price of $400,000, marked a noteworthy milestone: It’s the first month in a year when year-over-year prices were higher by only single digits.

Homes are taking longer to sell

While today’s slower price gains is good news for homebuyers, so far, they aren’t feeling all that inspired to snap up the goods.

For the week ending Jan. 21, homes lingered on the market 14 days longer than this same time last year, marking six full months of properties taking longer to sell than a year earlier.

This calmer tempo of market activity is a relief to house hunters, who now have more time to make decisions without the pressure to beat out competitors amid the bidding wars that dominated a year back. This is especially true for first-timers, Hale notes, who “are navigating what can be a daunting process even for experienced shoppers.”

On the flip side, Hale adds, “homeowners looking to sell in 2023 will want to be mindful of the slower market pace to set their expectations accordingly.”

Your home might not sell in the first hour it hits the market, in other words—and that’s OK.

Home sellers are being cautious

As for prospective home sellers who might be thinking about listing their homes? They, too, seem to be biding their time.

For the week ending Jan. 21, 5% fewer homes were listed for sale than the same week a year earlier, marking the 29th straight week of declines. That said, homebuyers have plenty to shop for with active listings up 69%.

By February, Hale thinks, more owners might be inclined to sell their homes, which would be a welcome development for the market.

As for what to expect, Evangelou thinks this spring’s homebuying season will perk up, although not quite as much as the past couple of years when mortgage rates hit record lows right while people itching to move hit pandemic highs.

“Generally, home sales activity increases by 33% in March compared to February,” says Evangelou. “However, in the last couple of years, activity was even busier due to low mortgage rates. Even though rates were rising last March, many buyers were rushing to benefit from the 4% rates during that time.”

This March will be different.

“Given low affordability and inventory, activity may not ramp up so fast in the spring season this year, but it will definitely be busier than it currently is,” Evangelou says. “Meanwhile, a stronger housing market could help the U.S. economy to skirt a recession.”

In other words, a strong economy and a strong housing market appear to go hand in hand, and could very well be on the horizon.

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