Despite recent drops in mortgage rates, homebuyer demand remains sluggish. However, one expert suggests now might be the perfect time to make offers before inventory tightens and prices rise further.
Current Mortgage Rate Trends
Mortgage interest rates have continued to decline, with the 30-year fixed-rate mortgage averaging 6.77% this week, down from last week's 6.89%, marking the lowest level since mid-March. Similarly, the 15-year fixed-rate mortgage dropped to 6.05%. Both rates are now lower than they were a year ago, a notable new trend.
Buyer Hesitation Amid Falling Rates
Sam Khater, Freddie Mac's chief economist, notes that the steady decline in rates hasn't spurred an increase in homebuying. "The apparent paradox is driven by buyers making sure rates don't decline further before they decide to purchase," Khater explains. This cautious approach, coupled with the typically slow home sales during the summer months, has kept demand weak.
Improving Affordability
Lisa Sturtevant, chief economist at Bright MLS, points out that affordability remains a significant obstacle for many buyers. However, the recent rate drops have helped ease some affordability challenges. According to Redfin, the typical monthly mortgage payment is now $2,722, which is $115 lower than the peak in April.
A Balanced Market on the Horizon?
Sturtevant anticipates that mortgage rates will continue to decrease in the coming months, potentially leading to a more balanced market. "We should expect to see both more buyers and more sellers enter the market," she says. This could make the housing market more balanced than it has been in years.
A Prime Opportunity for Buyers
Chen Zhao, head of Redfin's economic research team, suggests that now might be the optimal time for house hunters to get serious. "Mortgage rates have likely priced in the expected September cuts, so they shouldn't fall much further," Zhao says. "Now may be the right time for house hunters to make offers before prices increase even more and they lose some negotiating power. Plus, there are more homes to choose from, and many listings are growing stale, providing buyers with an opportunity to negotiate."
Inventory and Market Dynamics
While the inventory of active listings is up 18.4% year-over-year, the rate of increase has slowed, according to Redfin. This build-up in inventory presents an opportunity for buyers, but it is not yet driving a rush to purchase. The Mortgage Bankers Association reports a 3% drop in the seasonally adjusted purchase index compared to last week, and a 14% decrease compared to a year ago.
Why Are Mortgage Rates Falling?
The decline in mortgage rates is influenced by the 10-year Treasury yields, which have remained below 4.2%. Economic data indicates that the economy is slowing down and inflation is easing. The June jobs report and core price index readings suggest that the Federal Reserve might need to cut rates.
Looking Ahead
The upcoming Federal Reserve meeting later this month should provide more insight into the agency's intentions. While a rate cut in July is not expected, the Fed could signal readiness to start cutting rates in September and indicate how many more cuts might be necessary in the coming months. This development could help mortgage rates continue their downward trend, potentially making homeownership more accessible.
In conclusion, while homebuyer demand remains weak despite falling rates, this period could present a unique opportunity for prospective buyers to secure favorable deals before the market dynamics shift further.
