Austin, Texas – A significant decline in mortgage interest rates in December has sparked early optimism for this year’s spring housing market. With rates now one percentage point lower than in October, consumers anticipate further drops in the near future.
According to a monthly consumer survey by Fannie Mae, homeowners and higher-income groups are reporting a greater sense of optimism about mortgage rates than renters. This marks a significant shift in consumer expectations, driven by the recent bond market rally.
The average rate on the 30-year fixed mortgage has been fluctuating wildly since the start of the Covid pandemic. In 2020 and 2021, it hit more than a dozen record lows, below 3%, leading to a surge in homebuying and a sharp rise in prices. However, in 2022, the rates more than doubled. In October 2023, they reached a more than 20-year high, hovering around 8%. But in December, they fell back below 7%. Despite the recent decline, rates still remain twice as high as they were three years ago.
Real estate agents in the Washington, D.C.-area are already witnessing a resurgence of interest from potential buyers. Open houses for homes in the $1.1 million to $1.2 million price range have seen high foot traffic, even during heavy rain. This trend indicates that buyers who had previously put their home search on hold are now earnestly looking for properties.
Although tight inventory has kept prices high, there are expectations that an influx of new inventory will occur in the coming weeks. Homeowners who view the more positive mortgage rate outlook as an opportunity may list their homes for sale, thereby increasing the supply of existing homes.
Redfin, a national real estate brokerage, reported a rise in demand for home tours and other homebuying services in December as rates fell. Pending sales, which measure signed contracts on existing homes, also showed improvement, marking the smallest decline in two years.
Looking ahead, the strength of the economy and inflation will play a significant role in the direction of mortgage rates. If economic data continues on its current trajectory, rates could potentially drop further. Industry experts have projected rates to potentially reach the high 4’s or even the 5’s if recession fears for 2024 come true.
In summary, the decline in mortgage interest rates in December has generated early optimism for the spring housing market. Homeowners and higher-income groups are particularly hopeful about further drops in rates. Real estate agents are already experiencing increased activity from potential buyers. The housing market’s performance in the coming months will depend on both interest rates and home prices, with the potential for prices to rise further due to supply constraints.