“Home prices are likely stabilizing as well, so smart homebuyers will get in on the market ASAP, as the average monthly mortgage payment is not going to get that much cheaper in the months ahead.” Alicia Huey, chairman of the National Association of Home Builders, pointed out the role of scarce existing home inventory and … [Read more…]
Mortgage rates stabilized in the past week but remain close to the narrow range observed since the start of this month.
The 30-year fixed-rate mortgage averaged 6.69% as of Jan. 25, an increase from last week’s figure of 6.60%, according toFreddie Mac’s Primary Mortgage Market Survey released on Thursday. Meanwhile, the 15-year fixed rate averaged 5.96% this week, up from 5.76% during the prior week. And HousingWire’s Mortgage Rates Center showed that Optimal Blue’s average 30-year fixed rate for conventional loans was 6.713% on Thursday, up from 6.709% at the same time last week.
“Given this stabilization in rates, potential homebuyers with affordability concerns have jumped off the fence back into the market,” Freddie Mac chief economist Sam Khater said in a statement. “Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace.”
In the short term, all eyes are turned toward the meeting of the Federal Open Market Committee (FOMC) next Tuesday and Wednesday. According to Realtor.com economist Jiayi Xu, December’s higher-than-expected inflation reading made a dent in market confidence concerning the Federal Reserve’s readiness to implement interest rate cuts.
“The Federal Reserve is now facing a new challenge: determining the optimal timing for a shift to rate cuts,” Xu said in a statement. “The central bank faces the dilemma of potential negative impacts on the economy if the current restrictive policy persists longer and the risk of a dangerous rebound in inflation in 2024 if rates are cut prematurely.”
Mat Ishbia, chairman and CEO of United Wholesale Mortgage, told CNBC on Monday that he believed the Fed might start to cut rates as soon as March, April or May.
Meanwhile, the Bright MLS forecast for 2024 calls for mortgage rates to decline further this year, reaching 6.2% by the fourth quarter. But inventory is likely to remain an issue for homebuyers this year, cautioned Lisa Sturtevant, chief economist at Bright MLS. To stay within budget, buyers will have to talk through trade-offs and compromises with a real estate professional who understands local market conditions, Sturtevant said in a statement.
In January, builder confidence came in strong on the strength of declining mortgage rates. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) report rose seven points month-over-month to a reading of 44 in January.
Macro Trends Advisors founding partner Mitch Roschelle joins ‘Varney & Co.’ to discuss the housing market under the Biden administration as monthly mortgage payments continue to soar.
New U.S. home construction fell in December for the first time in four months, despite a sharp drop in mortgage rates.
Housing starts decreased 4.3% last month to an annual rate of 1.46 million units, according to new Commerce Department data released Thursday. Refinitiv economists had projected a pace of 1.42 million units. The decline stemmed from a substantial drop in single-family home construction, which fell by the most since July 2022.
However, applications to build – which measures future construction – rose in December, increasing 1.9% over the course of the month to an annualized rate of 1.49 million units. When compared with the same time last year, building permits are up about 6.1%.
“Building permits, a leading indicator of future construction, accelerated in December as builders expect the housing market to improve as borrowing costs fall,” said Jeffrey Roach, chief economist at LPL Financial.
HOME FORECLOSURES ARE ON THE UPSWING NATIONWIDE
Homes are under construction in Sacramento, California, on July 3, 2023. (David Paul Morris/Bloomberg via / Getty Images)
The data comes one day after the National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, rose five points to 44. The increase followed a three-point increase in December.
Any reading below 50 is considered negative.
MORTGAGE CALCULATOR: SEE HOW MUCH HIGHER RATES COULD COST YOU
“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs,” said Alicia Huey, NAHB chair and a custom home builder and developer from Birmingham, Alabama.
A sign outside a home for sale in Atlanta on Sept. 6, 2023. (Elijah Nouvelage/Bloomberg via / Getty Images)
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Sentiment among builders began steadily falling at the end of the summer after mortgage rates shot above 7%, throttling demand among would-be homebuyers. But borrowing costs have retreated over the past two months as many investors believe the Federal Reserve is done with its aggressive interest-rate hike campaign – and will soon pivot to cutting rates.
Rates on the popular 30-year fixed mortgage are currently hovering around 6.66%, according to Freddie Mac, down from a high of 7.79% at the end of October but well above the pre-pandemic average of 3.9%.
The recent decline has prompted a burst of optimism among homebuilders that the worst may be over. However, the housing market is facing new headwinds heading into 2024, including higher prices and shortages of labor and lumber.
Existing-home sales fell to their lowest level in nearly 30 years in December—but that didn’t cool red-hot home prices, with the median price reaching an all-time high of $389,800, the National Association of REALTORS® reported Friday.
Existing-home sales—which include completed transactions for single-family homes, townhomes, condos and co-ops—declined 1% month over month in December and are down 6.2% compared to a year earlier, NAR’s latest sales index shows. But lower mortgage rates, which are now below historical norms, likely will set the stage for stronger sales in 2024, NAR predicts.
“The latest month’s sales look to be the bottom before inevitably turning higher in the new year,” says NAR Chief Economist Lawrence Yun. “Mortgage rates are meaningfully lower compared to just two months ago, and more inventory is expected to appear on the market in the upcoming months.”
But home buyers nationwide are still facing a dearth of options. Total housing inventory at the end of December was down 11.5% from November, remaining at historical lows. Many would-be sellers are reluctant to trade in their super-low mortgage rates from just a couple of years ago and make a move at today’s higher rates and home prices. This “lock-in effect” has been blamed for subduing housing inventory, along with sluggish new-home construction that economists say isn’t keeping pace with demographic needs.
With home prices continuing to surge, homeowners are watching their equity grow. Yun says 85 million homeowners saw gains in housing wealth last month. The average U.S. homeowner with a mortgage has built more than $300,000 in equity since their purchase date, according to CoreLogic’s equity report.
However, “the recent rapid, three-year rise in home prices is unsustainable,” Yun says. “If prices continue at the current pace, the country could accelerate into ‘haves’ and ‘have-nots.’ Creating a path towards homeownership for today’s renters is essential. It requires economic and income growth and, most importantly, a steady buildup of home construction.”
Homes Still Selling Fast, More Inventory Coming
Builders are trying to ramp up construction, but there are production swings from month to month. Housing construction fell 4.3% in December but remains above 1 million units, the Commerce Department reported this week. Single-family housing permits—a gauge of future construction—posted an uptick last month, indicating that more new inventory is on the way. Still, it’s likely to be a challenging year for new-home construction due to higher mortgage rates and tight monetary policy, says Alicia Huey, chair of the National Association of Home Builders.
“Moderating mortgage rates are expected to provide a boost to new-home construction in 2024, but an uptick in building material prices and a shortage of buildable lots and skilled labor are serious challenges for home builders,” adds Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.
In the existing-home market, homes continue to sell fast. Fifty-eight percent of those sold in December were on the market for less than a month, NAR’s latest research data shows. NAR has predicted a stronger housing market for 2024. Here are more key housing indicators from NAR’s December report:
Days on the market: Properties typically remained on the market for 29 days, up slightly from 26 days a year earlier.
First-time home buyers: First-time home buyers comprised 29% of sales, down from 31% in November.
All-cash sales: All-cash sales comprised 29% of transactions, up slightly from last year’s 28%. Individual investors and second-home buyers make up the biggest bulk of all-cash sales, accounting for 16%, NAR’s data shows.
Regional Breakdown
The following is a closer look at how existing-home sales fared across the country in December:
Northeast: Sales remained flat compared to November but were down 9.6% compared to a year earlier. Median price: $428,100, up 9.4% from the previous year.
Midwest: Sales fell 4.3% from the prior month, reaching an annual rate of 900,000. Sales are down 10.9% from last year. Median price: $275,600, up 5.9% from December 2022.
South: Sales fell 2.8% from November to an annual rate of 1.72 million. Sales are down 4.4% when compared to the prior year. Median price: $352,100, up 3.8% from one year ago.
West: Sales rose 7.8% from a month ago, reaching an annual rate of 690,000 in December. Sales are down 1.4% from the year prior. Median price: $582,000, up 4.8% from December 2022.
Mortgage interest rates inched up this week, following nine straight declines totaling a decrease of 118 basis points (1.18%).
The average 30-year fixed rate mortgage (FRM) rose from 6.61% on Dec. 28 to 6.62% on Jan. 4, according to Freddie Mac.
“Given the expectation of rate cuts this year from the Federal Reserve, as well as receding inflationary pressures, we expect mortgage rates will continue to drift downward as the year unfolds,” said Sam Khater, Freddie Mac’s Chief Economist.
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Will mortgage rates go down in January?
Mortgage rates fluctuated significantly in 2023, with the average 30-year fixed rate going as low as 6.09% on Feb. 2 and as high as 7.79% on Oct. 26, according to Freddie Mac.
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The range can be largely attributed to the Federal Reserve’s ongoing fight against inflation, juxtaposed with uncertainty in the banking sector sparked by Silicon Valley Bank’s collapse. However, with duress permeating the financial market and the fallout from U.S. debt ceiling talks, the Fed may continue making hikes to bring interest rates down.
With the economy likely heading into a recession, it’s possible we’ve already seen the peak of this rate cycle. Of course, interest rates are notoriously volatile and could tick back up on any given week.
Experts from CoreLogic, Home Qualified, Realtor.com and others weigh in on whether 30-year mortgage rates will climb, fall, or level off in January.
Expert mortgage rate predictions for January
Craig Berry, branch manager at Acopia Home Loans
Prediction: Rates will moderate
“As inflation is the no. 1 item on the Federal Reserve’s radar right now, the Feds may choose not to lower the federal funds rate until inflation comes down. And, while Fed rate cuts aren’t a must-have in order for mortgage rates to come down, interest rates are affected by the federal funds rate.
The Feds continue to seek a balance between inflation and maximum employment so as not to cause significant damage to the economy which could trigger a recession. Recent momentum has been positive, and as long inflation cooperates, mortgage rates may see a slight decline in January. However, it isn’t likely that we’ll see significant drops to longer-term rates until we get further into 2024.”
Ralph DiBugnara, president at Home Qualified
Prediction: Rates will fall
“Rates finally shifted down some in December and stabilized lower. U.S. payrolls came in lower than anticipated, unemployment was up and building of new homes was down. These are good signs that inflation may have reached its peak and could trigger a lowering of rates. I expect the Fed to stay neutral for the time being and possibly through the first quarter of the year with possible cuts coming only if we see a drastic shift in the economy. For January, I believe the average 30-year fixed will land at 7.125% and the 15-year fixed will be 6.75%.”
Selma Hepp, chief economist at CoreLogic
Prediction: Rates will fall
“Mortgage rates should continue to decline, albeit very gradually and given there are no surprises with inflation. We should see rates fall below 7% mark.”
Hannah Jones, senior economic research analyst at Realtor.com
Prediction: Rates will fall
“If inflation and employment data continue to show signs of slowing, mortgage rates are likely to ease in January, though at a slower clip than in recent weeks. As incoming data confirms that the economy is indeed cooling, the upward pressure on mortgage rates will continue to let up and buyers will enjoy lower rates than in recent months.
However, if inflation or employment data come in stronger than expected, we could see rates pick up steam once again. Investors expect the Fed to hold steady at the current target rate in next week’s meeting, which would signal the Committee’s confidence in the current policy stance to bring inflation down to the target 2%. As inflation reaches the target level, mortgage rates will continue to drift lower.”
Jess Kennedy, COO at Beeline
Prediction: Rates will fall
“We expect rates to continue to ease as we kick off 2024. You can see the signaling of a rate cut from the Fed in many ways. For example, it is harder to find long-term CDs at the higher interest rates we were seeing 45-60 days ago). Publicly traded companies are also seeing their stock prices move higher on the expectation of rate relief in 2024. All these signs signal rates start to tick down even ahead of an official rate cut.”
Odeta Kushi, deputy chief economist at First American
Prediction: Rates will fall
“In light of favorable trends in inflation and labor market data, the Federal Reserve appears to be on a path towards its goals, although achieving its 2% inflation target will take some time. Consequently, the Fed is expected to maintain a restrictive stance, which will keep mortgage rates elevated. However, given slowing inflation and a cooling labor market, and barring any unforeseen developments, modest reductions in mortgage rates are possible in January.”
Rick Sharga, CEO at CJ Patrick Company
Prediction: Rates will fall
“With inflation moving in the right direction, wage growth slowing, and the jobs market softening a bit, it seems likely that the Federal Reserve has finished rate hikes for this cycle. That, coupled with weakening bond yields, should create an environment where mortgage rates can start a gradual, but steady decline throughout 2024. January rates for 30-year fixed-rate loans will probably straddle 7% — ranging from 7.1% to about 6.9% as the market finds its footing to begin the year.”
Mortgage interest rates forecast next 90 days
As inflation ran rampant in 2022, the Federal Reserve took action to bring it down and that led to the average 30-year fixed-rate mortgage spiking in 2023.
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With inflation gradually cooling, the Fed adjusted its policies with smaller and skipped hikes. Additionally, the economy showing signs of slowing has many experts believing mortgage interest rates will gradually descend in 2024.
Of course, rates could rise on any given week or if another global event causes widespread uncertainty in the economy.
Mortgage rate predictions for 2024
The 30-year fixed-rate mortgage averaged 6.62%% as of Jan. 4, according to Freddie Mac. All five major housing authorities we looked at project 2024’s first quarter average to finish above that.
The National Association of Home Builders sits at the low end of the group, predicting the average 30-year fixed interest rate to settle at 7.04% for Q1. Meanwhile, Fannie Mae had the highest forecast of 7.6%.
Housing Authority
30-Year Mortgage Rate Forecast (Q1 2024)
National Association of Home Builders
6.77%
Wells Fargo
6.85%
Fannie Mae
7.00%
Mortgage Bankers Association
7.00%
National Association of Realtors
7.50%
Average Prediction
7.02%
Current mortgage interest rate trends
Mortgage rates came down for the ninth consecutive week.
The average 30-year fixed rate increased from 6.61% on Dec. 28 to 6.62% on Jan. 4 The average 15-year fixed mortgage rate fell, going from 5.93% to 5.89%.
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Month
Average 30-Year Fixed Rate
December 2022
6.36%
January 2023
6.27%
February 2023
6.26%
March 2023
6.54%
April 2023
6.34%
May 2023
6.43%
June 2023
6.71%
July 2023
6.84%
August 2023
7.07%
September 2023
7.20%
October 2023
7.62%
November 2023
7.44%
December 2023
6.82%
Source: Freddie Mac
After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024. Whatever happens, interest rates are still below historical averages.
Dating back to April 1971, the fixed 30-year interest rate averaged around 7.8%, according to Freddie Mac. So if you haven’t locked a rate yet, don’t lose too much sleep over it. You can still get a good deal, historically speaking — especially if you’re a borrower with strong credit.
Just make sure you shop around to find the best lender and lowest rate for your unique situation.
Mortgage rate trends by loan type
Many mortgage shoppers don’t realize there are different types of rates in today’s mortgage market. But this knowledge can help home buyers and refinancing households find the best value for their situation.
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Which mortgage loan is best?
The best mortgage for you depends on your financial situation and your goals.
For instance, if you want to buy a high-priced home and you have great credit, a jumbo loan is your best bet. Jumbo mortgages allow loan amounts above conforming loan limits, which max out at $ in most parts of the U.S.
On the other hand, if you’re a veteran or service member, a VA loan is almost always the right choice. VA loans are backed by the U.S. Department of Veterans Affairs. They provide ultra-low rates and never charge private mortgage insurance (PMI). But you need an eligible service history to qualify.
Conforming loans and FHA loans (those backed by the Federal Housing Administration) are great low-down-payment options.
Conforming loans allow as little as 3% down with FICO scores starting at 620. FHA loans are even more lenient about credit; home buyers can often qualify with a score of 580 or higher, and a less-than-perfect credit history might not disqualify you.
Finally, consider a USDA loan if you want to buy or refinance real estate in a rural area. USDA loans have below-market rates — similar to VA — and reduced mortgage insurance costs. The catch? You need to live in a ‘rural’ area and have moderate or low income to be USDA-eligible.
Mortgage rate strategies for January 2024
Mortgage rates displayed their famous volatility in 2023. Uncertainty in the banking sector led to downtrends, but ongoing inflation battles, Fed hikes and a hot job market drove growth.
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At its September and November meetings, the central bank held off on a rate hike, preferring to see if the economy would keep cooling organically. In December, the FOMC skipped a hike and projected cuts for 2024. As always, the committee said it would adjust its policies as necessary — which could mean additional hikes or possibly none at all.
Here are just a few strategies to keep in mind if you’re mortgage shopping in the coming months.
Be ready to move quickly
Indecision can lead to failure or missed opportunities. That holds true in home buying as well.
Although the housing market is becoming more balanced than the recent past, it still favors sellers. Prospective borrowers should take the lessons learned from the last few years and apply them now even though conditions are less extreme.
“Taking too long to decide to make an offer can lead to paying more for the home at best and at worst to losing out on it entirely. Buyers should get pre-approved (not pre-qualified) for their mortgage, so that the seller has some certainty about the deal closing. And be ready to close quickly — a long escrow period will put you at a disadvantage.
And it’s definitely not a bad idea to work with a real estate agent who has access to “coming soon” properties, which can give a buyer a little bit of a head start competing for the limited number of homes available,” said Rick Sharga.
Buyer demand is lower than a typical year, but the market usually heats up in spring and summer. Being decisive (and prepared) should only play to your advantage.
Shopping around isn’t only for the holidays
Since interest rates can vary drastically from day to day and from lender to lender, failing to shop around likely leads to money lost.
Lenders charge different rates for different levels of credit scores. And while there are ways to negotiate a lower mortgage rate, the easiest is to get multiple quotes from multiple lenders and leverage them against each other.
“For potential home buyers, it’s important to get quotes from multiple lenders for a mortgage, as rates can vary dramatically, especially during such a volatile period,” said Odeta Kushi.
As the mortgage market slows due to lessened demand, lenders will be more eager for business. While missing out on the rock-bottom rates of 2020 and 2021 may sting, there’s always a way to use the market to your advantage.
How to shop for interest rates
Rate shopping doesn’t just mean looking at the lowest rates advertised online because those aren’t available to everyone. Typically, those are offered to borrowers with great credit who can put a down payment of 20% or more.
The rate lenders actually offer depends on:
Your credit score and credit history
Your personal finances
Your down payment (if buying a home)
Your home equity (if refinancing)
Your loan-to-value ratio (LTV)
Your debt-to-income ratio (DTI)
To figure out what rate a lender can offer you based on those factors, you have to fill out a loan application. Lenders will check your credit and verify your income and debts, then give you a ‘real’ rate quote based on your financial situation.
You should get three to five of these quotes at a minimum, then compare them to find the best offer. Look for the lowest rate, but also pay attention to your annual percentage rate (APR), estimated closing costs, and ‘discount points’ — extra fees charged upfront to lower your rate.
This might sound like a lot of work. But you can shop for mortgage rates in under a day if you put your mind to it. And shaving just a few basis points off your rate can save you thousands.
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Mortgage interest rate FAQ
What are current mortgage rates?
Current mortgage rates are averaging 6.62% for a 30-year fixed-rate loan and 5.89% for a 15-year fixed-rate loan, according to Freddie Mac’s latest weekly rate survey. Your individual rate could be higher or lower than the average depending on your credit score, down payment, and the lender you choose to work with, among other factors.
Will mortgage rates go down next week?
Mortgage rates could decrease next week (Jan. 8-12, 2024) if the mortgage market takes a cautious approach to a possible recession. However, rates could rise if lenders account for the Federal Reserve taking measures to counteract inflation or if a global event brings economic uncertainty.
Will mortgage interest rates go down in 2024?
If inflation continues to dissipate and the economy cools or goes into a recession, it’s likely mortgage rates will decrease in 2024. Although, it’s important to remember that interest rates are notoriously volatile and are driven by many factors, so they can rise during any given week.
Will mortgage interest rates go up in 2024?
Mortgage rates may continue to rise in 2024. High inflation, a strong housing market, and policy changes by the Federal Reserve have all pushed rates higher in 2022 and 2023. However, if the U.S. does indeed enter a recession, mortgage rates could come down.
What is the lowest mortgage rate right now?
Freddie Mac is now citing average 30-year rates in the 7% range. If you can find a rate in the 5s or 6s, you’re in a very good position. Remember that rates vary a lot by borrower. Those with perfect credit and large down payments may get below-average interest rates, while poor-credit borrowers and those with non-QM loans could see much higher rates. You’ll need to get pre-approved for a mortgage to know your exact rate.
Will there be a housing crash?
For the most part, industry experts do not expect the housing market to crash in 2023. Yes, home prices are over-inflated. But many of the risk factors that led to the 2008 crash are not present in today’s market. Low inventory and massive buyer demand should keep the market propped up next year. Plus, mortgage lending practices are much safer than they used to be. That means there’s not a subprime mortgage crisis waiting in the wings.
What is the lowest mortgage rate ever?
At the time of this writing, the lowest 30-year mortgage rate ever was 2.65%. That’s according to Freddie Mac’s Primary Mortgage Market Survey, the most widely used benchmark for current mortgage interest rates.
Should I lock my rate now or wait?
Locking your rate is a personal decision. You should do what’s right for your situation rather than trying to time the market. If you’re buying a home, the right time to lock a rate is after you’ve secured a purchase agreement and shopped for your best mortgage deal. If you’re refinancing, you should make sure you compare offers from at least three to five lenders before locking a rate. That said, rates are rising. So the sooner you can lock in today’s market, the better.
Is now a good time to refinance?
That depends on your situation. It’s a good time to refinance if your current mortgage rate is above market rates and you could lower your monthly mortgage payment. It might also be good to refinance if you can switch from an adjustable-rate mortgage to a low fixed-rate mortgage; refinance to get rid of FHA mortgage insurance; or switch to a short-term 10- or 15-year mortgage to pay off your loan early.
Is it worth refinancing for 1 percent?
It’s often worth refinancing for 1 percentage point, as this can yield significant savings on your mortgage payments and total interest payments. Just make sure your refinance savings justify your closing costs. You can use a mortgage calculator or speak with a loan officer to crunch the numbers.
How do I shop for mortgage rates?
Start by choosing a list of three to five mortgage lenders that you’re interested in. Look for lenders with low advertised rates, great customer service scores, and recommendations from friends, family, or a real estate agent. Then get pre-approved by those lenders to see what rates and fees they can offer you. Compare your offers (Loan Estimates) to find the best overall deal for the loan type you want.
What are today’s mortgage rates?
Mortgage rates are rising, but borrowers can almost always find a better deal by shopping around. Connect with a mortgage lender to find out exactly what rate you qualify for.
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1Today’s mortgage rates are based on a daily survey of select lending partners of The Mortgage Reports. Interest rates shown here assume a credit score of 740. See our full loan assumptions here.
Mortgage rates began dropping steadily in the last months of 2023, down to 6.61% for a 30-year, fixed-rate loan in the last days of the year, according to data from Freddie Mac.
But 85% of American homeowners remain locked into pre-pandemic mortgage rates of 5% and lower, making them hesitant to sell their home only to purchase another when both home prices and interest rates remain elevated.
Mortgage experts, however, predict that the market may shift in 2024, although not as dramatically as some would hope.
“Mortgage rates will fall to about 6.6% by the end of 2024. The gradual decline in rates combined with the small dip in prices will bring homebuyers some much-needed relief,” Redfin Chief Economist Daryl Fairweather told USA Today.
Jeff Taylor, founder and managing director at Mphasis Digital Risk, agreed that 30-year fixed rates will stay will in the “mid-6%” range.
National Association of Realtors chief economist Lawrence Yun made a bold prediction regarding the market. “A marked turn can be expected as mortgage rates have plunged in recent weeks,” he said.
However, even with interest rates falling, the lack of single-family homes on the market may keep prices elevated.
“While single-family housing starts have steadily increased throughout 2023, it will take years of accelerated new home construction to narrow the supply shortage gap from more than a decade of underbuilding,” Odeta Kushi, Deputy Chief Economist at First American, told USA Today.
Further, with existing homeowners refusing to sell because interest rates won’t match what they secured pre-pandemic, the housing shortage is destined to continue through 2024.
The rising costs of home insurance is also deterring new homebuyers, according to a recent Newsweek article. Real estate investors told the publication that it may be harder to get a mortgage in states like Florida, which is prone to extreme weather such as hurricanes, floods and tornadoes. If you can’t insure a home, you can’t secure a mortgage for its purchase. Current homeowners may experience rate hikes, too, but once a home is insured, it’s easier to maintain a policy than to write a new one.
California, Louisiana, Texas and Colorado also experienced rate hikes in 2023, as previously reported by GoBankingRates. Other states may be susceptible to future rate hikes, according to HUB Private Client research. These states include Minnesota, Missouri, Indiana and South Dakota, which is alarming as they were not previously considered areas at high-risk of weather-related claims.
But even with rising costs, 2024 could be the first year the U.S. sees an uptick in new home construction, as predicted by Robert Dietz, Chief Economist for the National Association of Home Builders.
“Due to low existing inventory, new construction has increased to approximately one-third of total single-family inventory in recent months when historically it was only 10% to 15%,” he said.
After declines in 2022 and 2023, the increase in new construction could help alleviate some of the housing shortage. But even an increased inventory of new homes won’t make a significant difference in the housing market for 2024. “Home prices keep marching higher,” Yun told USA Today. “Only a dramatic rise in supply will dampen price appreciation.
The recent dip in mortgage rates has made homebuilders more hopeful that they can once again start pouring concrete and raising roofs. But most are hedging their bets and many are still lowering prices or offering incentives to attract buyers.
Builders’ confidence rose from 34 to 37 points in December, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The index is based on a monthly survey of builders that includes various factors. “The HMI index gauging traffic of prospective buyers in December rose three points 24, the component measuring sales expectations in the next six months increased six points to 45 and the component charting current sales condition held steady at 40,” the report stated.
“Any number over 50 indicates that more builders view conditions as good than poor,” it noted. The increase in December, therefore, while positive, indicates that there is a long way to go before homebuilders have a broadly optimistic outlook. Regionally, only the Northeast’s HMI score rose above 50, with a two-point increase to 51 based on three-month moving averages. The Midwest dipped one point to 34, the South fell three points to 39 and the West sank four points to 31.
On the brighter side, the 50 basis point drop in mortgage rates in the past month has drawn more prospective buyers to scout out new homes.
Builders’ recent pessimism has been somewhat counter to gains for the pace of single-family permits and starts during this time frame, according to NAHB Chief Economist Robert Dietz.
“Our statistical analysis indicates that temporary and outsized differences between builder sentiment and starts occur after short-term interest rates rise dramatically, increasing the cost of land development and builder loans used by private builders,” Dietz commented.
“While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building,” he noted.
Dietz predicted that the gap between builder sentiment and construction activity would decrease once interest rates moderate.
Meanwhile, with mortgage rates still higher than 7%, builders continue to take financial hits to try to lure buyers. The NAHB data show that 36% cut home prices in December by an average of 6%, as they had in November, while 60% of builders offered sales incentives of all forms.
Higher mortgage rates sidelined demand for newly built homes in October.
Sales of new homes decreased 5.6% to a seasonally adjusted rate of 679,000 units last month from September’s seasonally adjusted annual rate of 719,000, according to the Census Bureau on Monday. That was much lower than Bloomberg consensus expectations of 725,000 units for October but still 17.7% higher than a year ago.
The slide in sales activity likely underscores the late summer spike in mortgage rates, according to one expert, which spooked budget-conscious buyers.
Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?
“I expect that we’ll see a decline in October. When we look at this data, it reflects the contracts entered into in August and September when rates were still climbing,” RSM US real estate senior analyst Crystal Sunbury told Yahoo Finance ahead of the release. Sunbury noted that closing on a new home takes about 30 to 60 days.
“By December we should see some recovery in new home sales, given the retreat in mortgage rates,” Sunbury said.
Mortgage rates crested 7% in mid-August and stayed about that threshold throughout September before surging even higher in October, hitting 7.79% the last week of that month, according to Freddie Mac. Rates have retreated for four straight weeks since then, dropping by a half-point so far in November.
Similarly, higher borrowing costs provided a monthly blow to existing home sales in October, which dropped 4.1% month over month and down 14.6% from the prior year, according to the National Association of Realtors (NAR).
A lack of inventory on the resale side has also weighed on sales. Many current homeowners are hanging on to their current homes because they remain reluctant to trade up and lose their existing low mortgage rate.
The number of previously owned homes for sale at the end of October was 1.15 million units, per NAR data, the lowest inventory level for that month since 1999.
That had been a boon to new home sales this year even as mortgage rates march higher. Builders have filled in some of the inventory gaps. At the end of October, the number of new houses for sale was 439,000, or a 7.8-month supply at the current sales pace.
To take the edge off rates, many public homebuilders have been offering below-market-rate home loans. For example, in Santa Fe, N.M., PulteGroup (PHM) is developing new communities, offering a 30-year fixed rate of 5.75%.
Read more: Types of mortgage loans: Buying a house in 2023
But smaller builders have been far less sanguine about market conditions. These builders are not as well-capitalized for future projects and don’t have the financial bandwidth to offer the same kind of mortgage rate buydowns as the bigger guys.
In October, 36% of smaller builders reported cutting home prices, up from 32% in the two previous months. Data from the National Association of Home Builders found this is the highest share of builders cutting prices during this cycle.
For instance, the median sales price of new homes sold in October was $409,300, the government reported, down from $422,300 the month before. The average sales price was $487,000, lower than September’s revised figure of $515,400.
That has hurt overall builder sentiment.
The October BTIG/HomeSphere survey, which polls 75 to 125 small and mid-sized builders nationally, found sales and traffic trends worsened despite “easy year-over-year” comparisons, BTIG homebuilding analyst Carl Reichardt Jr. wrote in a note.
“The bottom line: our survey suggests that new home demand trends remain quite sluggish for private builders,” Reichardt wrote.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.
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Both of the key metrics for residential construction, housing permits, and housing starts, beat analysts’ expectations in October. The U.S. Census Bureau and Department of Housing and Urban Development said permits rose 1.1 percent compared to September while housing starts increased by 1.5 percent.
Permits were issued at a seasonally adjusted annual rate of 1.487 million units compared to 1.471 million units in September. The September estimate was only a slight revision from the 1.473 million originally reported. Analysts polled by Econoday had estimated that permits would come in at 1.463 million units.
The permits issued in October 2023 were 4.4 percent fewer than the 1.555 million permits authorized in October 2022.
The annual rate of permitting for single-family houses was 968,000 units, 0.5 percent higher than the 963,000 units in September and an improvement of 13.9 percent year-over-year. Multifamily permits increased by 2.2 percent to 469,000 but dropped 27.9 percent compared to October 2022.
On a non-adjusted basis, there were 124,000 permits issued last month, 79,700 of which were for single-family houses, an improvement on the relative numbers in September of 116,700 and 76,500. Permits for the first nine months of 2023 total 1.252 million, down 13.8 percent from the same period last year. The 773,600 permits for single-family houses are a reduction of 10.6 percent from the same period last year and the 432,300 multifamily represent a decrease of 20.1 percent.
Privately-owned housing starts were at a seasonally adjusted annual rate of 1.372 million units compared to 1.346 million units in September, a downward revision from the 1.358 million units reported in October. Starts remained lower on an annual basis, in this case by 4.2 percent. Analysts had estimated that housing starts would be at a 1.350 million annual rate.
Single-family construction starts were at an annualized rate of 970,000 units, annualized, compared to 968,000 units in September and 858,000 units in October 2022, gains of 0.2 and 13.1 percent, respectively. Multifamily starts increased by 4.9 percent compared to September but were 31.8 percent lower year-over-year.
There were 115,400 residential construction starts in October, units 900 fewer than in September. Single-family starts were flat at 81,400.
Thus far in 2023, there have been 1.194 million residential units started, 11.3 percent fewer than by the end of October 2022. Single-family starts have declined from 884,200 to 790,600 and multifamily starts at 392,00 are down 12.4 percent.
Robert Dietz, chief economist of the National Association of Home Builders (NAHB) commented on the Census Bureau report. “Despite higher interest rates in October, the lack of existing home inventory supported demand for new construction in the fall. NAHB is forecasting improving conditions for single-family home building, as the 10-year Treasury rate has returned to near 4.5 percent, with an outright gain for single-family starts in 2024.” NAHB, however, is forecasting a decline for multifamily construction in 2024.
There were 122,200 homes completed in October, including 85,400 single-family houses and 36,000 multifamily units. Completions for the year-to-date total 1.190 million units, a 5.0 percent annual increase. Single-family completions are down 1.7 percent to 819,600 units but 361,000 multifamily units have come online, a 23.6 percent increase.
At the end of October, there were 1.674 million residential units under construction, 669,000 of which were single-family houses. There were an additional 281,000 permits outstanding, exactly half of which were for single-family units.
In the Northeast region, permits were 15.6 percent higher than in September and 12.5 percent above the October 2022 rate. Starts dropped by 14.5 percent from the previous month and 24.5 percent compared to a year earlier. Completions were 1.0 percent higher than the prior October.
The Midwest saw a decline in permits of 10.6 percent for the month and 21.8 percent year-over-year. Starts were 28.4 percent and 5.2 percent higher than the two earlier periods. Nine percent fewer units came online than in October 2022.
Permitting rose in the South by 3.1 percent but lagged the prior October rate by 5.3 percent. Construction starts fell 6.8 percent and 8.1 percent. Completions were down 1.7 percent on an annual basis.
There was a 1.7 percent dip in permitting in the West, but the rate rose 3.6 percent on an annual basis. Starts grew 12.5 percent from the prior month’s level and were 4.7 percent higher than in October 2022. Completions dropped 16.6 percent year-over-year.
On the construction side, homebuilders as well as land developers found it hard to finance projects because of high short-term interest rates. On the consumer side, a large number of prospective buyers sat on the sidelines as housing affordability worsened.
Shelter remained the largest contributor to inflation in October, according to the CPI report. However, the rate of housing inflation is steadily falling and there are high hopes that interest rates will fall in 2024.
“While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months,” NAHB Chief Economist Robert Dietz said in a statement.
“In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
NAHB forecasts approximately a 5% increase for single-family housing starts in 2024 as financial conditions ease.
Homebuilders continued to make adjustments to boost their sales
According to the survey, 36% of builders cut home prices, up from 32% in the previous two months. It was the highest share of builders cutting prices recorded in one year.
According to the NAHB, the average price discount remained at 6%, unchanged from the previous month.
All three major HMI indices posted declines in November. Homebuilders’ gauge of current sales conditions fell to 40. The gauge measuring traffic of prospective buyers declined to 21. And the component charting sales expectations over the next six months fell to 39.
The three-month moving averages for HMI all declined across the four major regions in November. The Northeast fell one point to 49; the Midwest dropped three points to 36; the South fell seven points to 42; and the West posted a six-point decline to 35.