Mortgage Rates Fall for Eighth Consecutive Week, Providing Relief for Home Buyers as New Year Approaches
Mortgage rates fell for the eighth consecutive week, providing relief to cash-strapped home buyers as the new year approaches. According to data released by Freddie Mac, the average interest rate on a 30-year fixed mortgage dropped to 6.67% for the week ended Dec. 20, down from 6.95% the previous week. This marks a significant decrease from late October when rates were at a high of 7.79% – the highest in over two decades.
The decline in borrowing costs translates to hundreds of dollars in savings for new buyers each month. However, experts caution that consumers should not expect a drastic improvement in 2024. Factors such as inflation expectations and Federal Reserve policy influence mortgage interest rates, which are predicted to bottom out around 6.4% next year.
Keith Gumbinger, vice president of research firm HSH.com, emphasized that while mortgage money may be cheaper, it does not necessarily mean it will be cheap. Economic growth and inflation levels are expected to remain elevated, preventing further declines in borrowing costs.
The recent drop in rates can be attributed to reports indicating a slowdown in inflation, as well as the Federal Reserve signaling a halt in raising its benchmark interest rate. Despite the decrease, housing prices remain significantly higher compared to when rates were below 3% during the early stages of the pandemic.
The impact of lower mortgage rates on the housing market will depend on the reactions of buyers and sellers. While the initial surge in rates led to a decrease in home prices and increased inventory, prices have been on the rise again as buyers return and existing homeowners hold onto their low-rate mortgages.
Jordan Levine, chief economist with the California Association of Realtors, anticipates rates to end 2024 in the low 6% range, potentially prompting more existing homeowners to sell. However, the increase in supply may not be enough to offset the influx of buyers attracted by lower borrowing costs, leading to a more competitive market in 2024.
A forecast from Zillow suggests that home values in Southern California may remain flat or experience a slight decline between November 2023 and November 2024. Falling rates could impact home price growth, but the affordability crisis in Los Angeles may hinder buyers’ ability to respond quickly to market changes.
Overall, the decrease in mortgage rates offers some relief to home buyers, but the housing market is expected to remain competitive with prices likely to increase by around 8% in Southern California by the end of 2024.