NAR’s Yun: Mortgage Rates May Dip Below 6%
Good news 3: An average weekly mortgage rate of, say, 5.8% could draw lots of buyers back into the market, and NAR’s chief economist thinks that could happen.
CHICAGO – Inflation has been dropping over the past six months, and consumers can expect mortgage rates to soon follow, says Lawrence Yun, chief economist for the National Association of Realtors® (NAR). The 30-year fixed-rate mortgage could even drop below 6%, he adds.
Anything below 6% would be welcome news to homebuyers who were shell-shocked by the surge in rates above 7% last fall, which prompted a sudden contraction in the housing market.
Mortgage rates have been receding over recent weeks, with the 30-year fixed-rate mortgage averaging 6.33% last week, according to Freddie Mac’s weekly survey. Since peaking in mid-November, mortgage rates have now fallen by 0.75 percentage points.
“The gate is beginning to open for homebuyers who got shut out in October and November when the rates went above 7%,” says Yun. “However, there is still a housing shortage and not enough listings.” That likely will keep home prices higher, economists note.
Inflation was at 6.2% in December, according to data released this week, which is down considerably from a peak of 9.1% in June 2022.
“Housing inflation due to rising rents is the one major item still showing acceleration but is soon expected to come down as well,” Yun says.
Rents rose by 8.35% in December, the highest increase in more than 40 years. But recent housing data has indicated that rents have begun to fall: Realtor.com, for example, reports that rents have dropped in many of the nation’s hottest real estate markets after rising more than 20% over the past three years. Also, robust apartment construction likely will raise rental vacancy rates, which could help further ease rental prices in the months ahead, Yun adds.
The housing market has become “hypersensitive” to weekly movements in mortgage rates, says Sam Khater, Freddie Mac’s chief economist. Mortgage applications for home purchases have experienced large swings relative to even small changes in rates.
“Over the last few weeks, latent demand has been on display, with buyers jumping in and out of the market as rates move,” Khater says.
After several weeks of dropping mortgage rates, however, aspiring buyers may gain some confidence to move forward.
“This downward trend of mortgage rates gives a scrap of hope for many homebuyers for the months ahead,” says Nadia Evangelou, NAR’s senior economist and director of forecasting. “With a 6% rate instead of 7%, buyers pay about $2,700 less every year on their mortgage. As a result, owning a home becomes affordable to about 1.4 million more renters and 4.3 million more homeowners. This could bring more buyers back to the market, boosting demand for housing and increasing market competition.”
Source: National Association of Realtors® (NAR)
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