Mortgage Rates Fall Below 7% — Here’s Why Buying a House Still Won’t Be Easy
Written by
Yaël Bizouati-Kennedy
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In a hopeful sign for homebuyers, mortgage rates finally fell below 7% on Dec. 13 — the first time since August. The 30-year average mortgage rate now stands at 6.95%, compared to 7.03% last week, according to Freddie Mac.
And after hovering around an eye-popping 8% for several weeks, as of Dec. 14, the average 30-year mortgage rate fell below 7% — the first time since August, according to Freddie Mac data.
Falling mortgage rates are going to improve affordability which has been a key pain point for home shoppers in the last few years and a steeper drop in mortgage rates could also help improve the availability of homes as current homeowners don’t feel as locked in to their current mortgage rate, said Realtor.com chief economist Danielle Hale.
“However, rates would have to fall much further for house hunters to see a boost in inventory,” she added. “Realtor.com’s 2024 Housing Forecast anticipates that mortgage rates will hit 6.5% at the end of the calendar year which would not be enough to increase inventory, but if rates fall further and faster, that could help improve options for buyers.”
Indeed, while the 30-year average mortgage rate stands at 6.95%, to put this in context, it’s still high compared to the corresponding week in 2021-6.31%; the corresponding week in 2021-3.12% and the corresponding week in 2020-2.70%, according to Freddie Mac data.
Sam Khater, Freddie Mac’s chief economist, said in a press release that the combination of decelerating inflation with the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year could likely trigger a gradual thawing of the housing market in the new year.
While this is welcomed news, buyers are still facing a difficult road to homeownership and a slew of challenges.
In addition to the rates issue, high prices and low inventory partly due to homeowners who’d rather stay put due to the low mortgages they secured a few years ago have left many homebuyers on the sidelines.
As Ted Rossman, senior industry analyst, CreditCards.com, explained, because about 80% of current homeowners have a rate below 5% (according to Redfin), rates in the high 6% or low 7% won’t be enough to get many homeowners off the fence and ready to list their house and buy something else.
“They might be trading a 3% or 4% mortgage rate for around 7%, plus they’ll probably be paying more for whatever they’re buying. Low inventory has helped keep prices high,” said Rossman. “A $300,000 loan costs $731 per month more at 7% than it did at 3%.”
Finally, low inventory is also putting pressure on home prices and some experts argue that the limited housing supply is keeping housing prices artificially high.
“Renting is now more cost-effective in many areas than buying a house,” said Jay Zigmont, PhD, CFP, founder of Childfree Wealth. “While it may go against the ‘norm’, we may be in a time of more renting and less buying for a while.”
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