Homebuying activity picked up last week as mortgage rates fell from their peak late last year, an encouraging sign for a housing market that has been buffeted by the Federal Reserve’s efforts to raise interest rates.
Mortgage demand was up 7% on a seasonally adjusted basis from the week before, according to data released on Wednesday by the Mortgage Bankers Association. Refinancing applications were also up 15% as consumers took advantage of declining mortgage rates.
EXISTING HOME SALES HAVE WORST DECEMBER SINCE THE HOUSING CRASH IN 2008
As of Wednesday, the average rate on a 30-year fixed-rate mortgage was 6.15%, down from its peak of over 7% in October and into November, according to Freddie Mac. The rate on an average 15-year fixed-rate mortgage was 5.28%.
Still, mortgage rates are much higher than a year ago, when a 30-year fixed-rate mortgage was clocking in at just over 3.5%. As a result, the housing market has fallen into a recession as demand dries up and consumers wait for mortgage rates to drop lower.
“Mortgage rates declined for the third straight week, which is good news for potential homebuyers looking ahead to the spring homebuying season,” said Joel Kan, MBA’s vice president and deputy chief economist.
“Overall applications increased with both gains in purchase and refinance activity, but purchase applications remained almost 39% lower than a year ago. Homebuying activity remains tepid, but if rates continue to fall and home prices cool further, we expect to see potential buyers come back into the market,” he added. “Many have been waiting for affordability challenges to subside.”
The elevated mortgage rates are a direct result of the Fed raising its interest rate target several times last year. The central bank is expected to hike rates once again at the end of the month, although it appears poised to begin stepping away from tightening at some point this year as inflation trends down.
Sales of existing homes fell for an 11th straight month in December and were the worst for the month since 2008, the year that the country suffered a devastating financial crisis following the housing crash.
Existing-home sales plunged by 1.5% in December to a seasonally adjusted annual rate of 4.02 million, according to a report by the National Association of Realtors released last week. Sales were down 34% from a year ago.
Despite the fast-falling number of sales, prices of homes are still high, although price growth is slowing. The median price of an existing home in December was $366,900, a growth of 2.3% from the year before.
“December was another difficult month for buyers, who continue to face limited inventory and high mortgage rates,” NAR Chief Economist Lawrence Yun said. “However, expect sales to pick up again soon since mortgage rates have markedly declined after peaking late last year.”
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The shifting market is also reflected in housing starts, which measure the annualized change in the number of new residential buildings that began construction. Starts fell 1.4% last month to an annual rate of 1.38 million units, according to recently released data from the Commerce Department.
The Fed is set to meet on Jan. 31 and Feb. 1 and will announce its decision on what to do with the federal funds rate following the huddle. Investors are now pegging the odds of a hike of 0.25 percentage points at more than 99%, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.
