Mortgage rates have finally fallen below 7% for the first time in months and purchase applications are on the rise. Still, the low inventory of homes on the market is keeping home prices elevated, providing little comfort for prospective buyers.
Freddie Mac's latest Primary Mortgage Market Survey released Thursday showed that the average rate for the benchmark 30-year fixed-rate mortgage fell to 6.95% this week, down from 7.03% last week but up from 6.31% a year ago.
At the same time, the rate for a 15-year fixed mortgage rose, averaging 6.38% after coming in last week at 6.29%. One year ago, the rate on a 15-year fixed note averaged 5.54%.
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"Potential homebuyers received welcome news this week as mortgage rates dropped below seven percent for the first time since August," said Sam Khater, Freddie Mac’s chief economist, in a statement. "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."
The Mortgage Bankers Association reported Wednesday that mortgage applications have increased for six weeks straight as mortgage rates have continued their downward trajectory. However, purchase volume remained 18% lower than the same week a year ago.
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Many homeowners who are locked in at much lower rates are opting to stay put rather than sell, contributing to inventory shortage. According to data from Realtor.com, roughly two-thirds of outstanding mortgages have rates below 4%, and more than 90% have rates lower than 6%.
Economists do not expect the affordability crisis to end any time soon.
"The disparity between today’s higher market mortgage rates and the lower rates that existing homeowners benefit from on their current mortgages, commonly referred to as the lock-in effect, is expected to play a role in maintaining low inventory levels," Realtor.com economist Jiayi Xu said in a statement.
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"As home shoppers compete over the still-limited inventory, prices are expected to stay elevated, maintaining affordability as a top concern."
