Mortgage Rates Fall, Slightly Boosting Demand

The first month of 2023 is nearing its final week and with it departs persistently high mortgage rates that have plagued potential home buyers the last few years. Yes, over the last couple of days, mortgage rates have let up a bit as inflation is starting to ease. Specifically, the 10-year Treasury bond fell from 3.75%, at the top of the year, to 3.37 the past week.

Accordingly, new data from Freddie Mac indicates the average interest rate on a 30-year fixed mortgage is now 6.15%. A week ago (ending January 13), the same mortgage carried an interest rate of 6.33%. While the decline is certainly welcome, it is still nowhere near the 30-year fixed mortgage interest rate from one year ago, which was only 3.56%.

Freddie Mac chief economist Sam Khater comments that as inflation appears to be slowing, mortgage rates are following suit and going down, albeit incrementally. Still, even the slightest reductions in mortgage rates will pique more potential home-buyer interest, which certainly appears to be the case right now. Khater adds, “Rates are at their lowest level since September last year, boosting both homebuyer demand and home builder sentiment.”

Indeed, the interest rate dip should help improve the housing market overall. Coming out of the pandemic, interest rates have been higher than average, leading to fewer home sales and lower interest overall. As mortgage rates have started to ease, home buyer sentiment has been improving, resulting in a 28% bump in home loan applications just last week (according to data from the Mortgage Bankers Association).

Although this decline has brought mortgage rates down one percentage point from their peak in October, rates are still around double what they were 12 months ago. The slightly lower prices may attract first-time buyers, but homeowners who took advantage of significantly lower rates in the past few years may be more reluctant to sell. So while public sentiment regarding the housing market may improve overall, it is likely that the meager sales of the pandemic could persist just a little longer as the market balances out.