In a boon to the housing market, mortgage rates in the United States experienced a slight decline, offering support to a sector witnessing a resurgence in demand. According to Freddie Mac’s statement on Thursday, the average rate for a 30-year fixed loan dropped to 6.63%, down from 6.69% the previous week.
While this downward trajectory in borrowing costs provides some respite, substantial relief for prospective homebuyers might still be on the horizon. The Federal Reserve has maintained its stance on interest rates since July, signaling a cautious approach. Despite recent suggestions of potential cuts this year, Fed Chair Jerome Powell emphasized the need for additional data before initiating any adjustments.
Jiayi Xu, an economist at Realtor.com, warned against premature rate cuts, citing the risk of triggering inflation. Xu stated, “Any premature rate cut could pose a dangerous risk of inflation rebounding. In other words, the persistently high rate environment will continue to affect all parts of the economy.”
The decline in mortgage rates by more than a percentage point from recent highs has injected momentum into the housing market. This was evident in December with increases observed in both new-home sales and contracts for previously owned properties.
Freddie Mac’s chief economist, Sam Khater, highlighted the robust performance of the economy, driven by solid job growth and rising incomes, alongside a surge in household formation. Khater noted, “These favorable factors should provide strong fundamental support to the market in the months ahead.”
However, challenges persist in terms of affordability, exacerbated by a shortage of listings that keeps prices elevated. While there’s a gradual increase in inventory, it’s expected to remain constrained until a significant decline in mortgage rates attracts more sellers to the market. Many existing homeowners are holding onto their sub-4% mortgages, hesitant to sell and incur higher borrowing costs.
As the housing market navigates through these dynamics, the trajectory of mortgage rates and the Federal Reserve’s policy decisions will continue to shape the landscape, influencing both buyers and sellers alike.
