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Despite a brief uptick in February due to persistent inflation concerns and unexpectedly high employment figures, rates have resumed their downward trajectory, signaling a revitalized opportunity for prospective homeowners.
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Mortgage rates have demonstrated a volatile yet generally declining trend since peaking in October last year, currently sitting at an average of 6.74% for a 30-year term as of March 14, 2024, according to Freddie Mac’s weekly average of U.S. 30-year fixed-rate mortgages. Despite a brief uptick in February due to persistent inflation concerns and unexpectedly high employment figures, rates have resumed their downward trajectory, signaling a revitalized opportunity for prospective homeowners. 

Mortgage rates are a critical determinant of buying power, influencing the affordability of loans for potential homeowners. The recent rate decreases provide a more favorable borrowing environment and potentially increase the number of individuals willing to purchase a new home. 

These calculations reveal how varying interest rates affect the monthly mortgage payment for a median-priced home of $380,000 over a 30-year term: 

At a 5% interest rate, the monthly payment would be approximately $2,040. 

At 6%, the monthly payment increases to $2,278. 

At 7%, the payment further increases to $2,528. 

For potential home buyers, falling rates increase their purchasing power, allowing them to either save on monthly payments or afford a more expensive home. This shift could reinvigorate the housing market by increasing demand. 

The recent dip in mortgage rates has a particularly pronounced effect on first-time buyers. This group, often facing budget constraints and saving challenges, stands to benefit significantly from lowered rates. Consequently, this development not only opens the door for more individuals to fulfill their dream of owning or upgrading a home but also injects fresh energy into the market, potentially stimulating growth and accessibility in a sector where first-time buyers are crucial drivers of demand. 

Despite the drop in mortgage rates potentially increasing buyer interest, the market remains tight because many homeowners are hesitant to sell, deterred by the prospect of entering the market as buyers themselves and giving up their current low-rate mortgages. However, there are some signs that the market is softening. For example, the Federal Reserve Bank of St. Louis reports that the median number of days it takes to sell a house in the U.S. has risen from a low of 30 days in May 2022 to 69 days in January 2024, which is the most recent data available. Inventory levels have also been increasing, with current active listings in the U.S. at 665,000, nearly the low reached in February 2022, according to the Federal Reserve Bank of St. Louis.  

Though the housing market remains tight historically, the recent signs of softness have caused some adjustments. Seller concessions are emerging as a notable trend in response to homes taking longer to sell. According to RISMedia, concessions are making a comeback in some markets, offering buyers relief through mortgage rate buydowns and other incentives. This strategy, increasingly adopted by sellers and home builders in collaboration with lenders, aims to make buying a home in a challenging market more attractive. 

For buyers in highly competitive markets, such as New York, Denver, and San Francisco, the relative ease of finding properties without engaging in bidding wars presents an attractive buying opportunity. This, combined with the possibility of being offered seller concessions, becomes even more appealing when considering that the factors keeping housing inventory levels historically tight are unlikely to change anytime soon. 

 Written by: Kristopher Jones, CFA


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