Mortgage rates have dropped this week to their lowest level in eight months, providing potential homebuyers with some relief after several weeks of rate increases. According to Freddie Mac's latest Primary Mortgage Market Survey, the average rate for the benchmark 30-year fixed mortgage decreased to 6.60% this week, down from 6.62% last week but still higher than the rate of 6.33% a year ago. The rate on the 15-year fixed mortgage also saw a decline, averaging 5.76% compared to 5.87% last week and 5.28% a year ago. This marks the lowest rates since May of last year.
Sam Khater, Freddie Mac's chief economist, considers this drop in rates to be a positive development for the housing market, especially for first-time homebuyers who are sensitive to changes in affordability. However, as demand for home purchases continues to increase, it will put additional pressure on the already limited inventory available for sale.
The shortage of existing homes for sale has contributed to elevated prices, but the decline in mortgage rates since the fall has led to an increase in demand, particularly for new homes. Despite this, there was a surprising drop in single-family home construction in December, following four months of increases in housing starts, according to the Commerce Department. However, building permits, which serve as a leading indicator of future construction, rose last month, suggesting that builders expect the housing market to improve throughout the year.
LPL Financial chief economist Jeffrey Roach believes that falling mortgage rates will stimulate housing demand in the coming months. He also notes that the low supply of existing homes on the market is pushing potential buyers towards new construction. Roach advises investors to expect opportunities within the homebuilder sector throughout the year.
While the decrease in mortgage rates is encouraging for potential homebuyers, it is important to consider the overall state of the housing market, including factors such as inventory levels, construction activity, and affordability. The impact of these rate changes will vary depending on individual circumstances and market conditions.