Mortgage Rates Drop Below 7%: A Ray of Hope for the Housing Market?

The U.S. housing market, facing a prolonged chill, might find relief as mortgage rates dip below 7%, marking the first time in four months. With a seven-week downward trend, rates have descended from October’s 7.79% high to a current 6.95% for a 30-year fixed-rate loan, as reported by Freddie Mac.

Unveiling the Downturn

“The sharp and surprising decline in mortgage rates could help lift [the housing market] out of its multifaceted chill or deep freeze, given the low level of home sales,”

says Mark Hamrick, senior economic analyst at Bankrate. He added that the lower rates could compel some owners to put their properties on the market, helping to bolster painfully low inventories.

Federal Reserve’s Role

Sam Khater, Freddie Mac’s chief economist, emphasizes the Federal Reserve’s role in this shift.

“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 Fed’s decision to hold the benchmark rate steady and project future cuts has expedited the reduction in mortgage rates, as noted by Thomas Ryan, property economist at Capital Economics.

Cautious Optimism

While this sets the stage for a 2024 recovery in housing market activity, Ryan urges caution. He notes that though borrowing costs will improve, they are unlikely to return to the lows of the 2010s, and the recovery may be gradual.

Realtors’ Positive Projections

The National Association of Realtors (NAR) adds a positive perspective, forecasting a 13.5% surge in existing home sales in 2024.

“Falling mortgage rates and rising income will lead to a recovery in demand for housing,”

predicts the NAR, envisioning an improved outlook for homebuyers in the new year.

As the housing market navigates these changes, the dip in mortgage rates could indeed be a glimmer of hope, offering opportunities for both buyers and sellers in the coming year. The alignment of favorable rates, Federal Reserve interventions, and optimistic projections sets the stage for a potential resurgence in the U.S. housing market.