Low Inventory Keeps Home Prices Elevated
Mortgage rates have finally fallen below 7% for the first time in months, bringing good news to potential homebuyers. The latest Primary Mortgage Market Survey released by Freddie Mac shows that the average rate for the benchmark 30-year fixed-rate mortgage has dropped to 6.95% this week, down from 7.03% last week. However, the low inventory of homes on the market is keeping prices elevated, providing little comfort for prospective buyers.
15-Year Fixed Mortgage Rates Rise
In contrast to the decrease in 30-year mortgage rates, the rate for a 15-year fixed mortgage has risen. It now averages 6.38% compared to 6.29% last week. One year ago, the rate on a 15-year fixed note averaged 5.54%. Despite this increase, the overall trend of falling rates is encouraging for potential homebuyers.
Mortgage Applications Increase for Six Consecutive Weeks
The Mortgage Bankers Association has reported that mortgage applications have been on the rise for six straight weeks as mortgage rates continue to decline. However, purchase volume remains 18% lower than the same week last year. This indicates that while more people are applying for mortgages, the number of actual home purchases is still relatively low.
Low Inventory Due to Homeowners Opting to Stay Put
Many homeowners who have locked in much lower mortgage rates are choosing to stay in their current homes rather than sell. This trend is contributing to the shortage of homes available on the market. Data from Realtor.com shows that approximately two-thirds of outstanding mortgages have rates below 4%, and more than 90% have rates lower than 6%. As a result, the inventory shortage is expected to persist, further impacting home prices.
Affordability Crisis Persists
Economists do not anticipate the affordability crisis to end any time soon. The difference between current market mortgage rates and the lower rates enjoyed by existing homeowners is expected to play a role in maintaining low inventory levels. As home shoppers compete for the limited inventory, prices are expected to remain elevated, making affordability a top concern.
“Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year,” said Sam Khater, Freddie Mac’s chief economist.