That’s right—sales of previously owned homes shot up by 5.1% in December. That’s the fourth straight month of increases, the longest winning streak since the middle of 2020. Even as housing activity begins to recover, more homeowners are falling into having an effective mortgage rate over 6%. In reality, those with high rates have outnumbered beneficiaries of ultra-low rates (under 3%). This shift indicates a changing landscape in the real estate market as potential buyers and sellers adjust to current conditions.
In December, the median price for existing home sales reached an all-time high of $405,400. That was the 30th straight month of increasing year-over-year prices. The average 30-year fixed mortgage rate has climbed back up, averaging 6.06% for the week ending January 15. This is a notable decline from 7.04% at this time last year. This drop represents the lowest borrowing rates since September 2022.
Market analysts are digesting what recent sales trends and mortgage rates mean for home sales. Further, they posit that these trends can decrease the impact of the “lock-in effect,” which keeps current homeowners hesitant to sell because of higher interest rates. Susan Wachter, a professor of real estate at the Wharton School of the University of Pennsylvania, commented on this development, stating, “It has started; we can already see it in the data.”
In tandem with falling mortgage rates, the monthly costs on home loans are now rapidly dropping. A typical homebuyer who buys a $450,000 home and puts 20% down will have monthly principal and interest payments close to $2,405. This figure is calculated at today’s low interest rate. As of today, interest rates are at an average of 6.06%. Thanks to this, your payments will drop down to about $2,172—saving you right around $230 every month—adding up to almost $84,000 over a 30-year mortgage.
And as we noted previously, former President Donald Trump has called for purchasing $200 billion in mortgage bonds. This move is intended to offset a recently announced series of changes that would increase borrowing costs for homebuyers. He asserted that this initiative would make homeownership more affordable: “This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”
Demand for existing home sales and refinancing activity is currently booming. This shift indicates that buyers are finally beginning to capitalize on these positive conditions. Sam Khater, chief economist at Freddie Mac, noted: “The impacts are noticeable, as weekly purchase applications and refinance activity have jumped, underscoring the benefits for both buyers and current owners.”
The challenges we’ve faced in the housing market even before the pandemic are still apparent. Daryl Fairweather, Redfin’s chief economist, noted the number of home-owners stuck in place with high mortgage rates. This worsening trend is forcing them to put off consequential life choices. “People who have felt locked in their homes may be turning down job opportunities; they may be delaying getting married; they may be delaying having a baby—all because they feel trapped in a home that doesn’t meet their needs.”