Mortgage rates recently returned to their lowest level in more than three years. All of this means that housing activity is finally starting to gain some momentum after a frustratingly slow rebound. In case you missed it… Last week, former President Trump got on social media. Second, he called on them to purchase $200 billion in mortgage-backed bonds to lower the cost of borrowing. This new issuance call is a positive sign that interest is once again emerging towards using these economic conditions to help stimulate the housing market.
The National Association of Realtors (NAR) just announced that the median price of existing home sales skyrocketed to $405,400 in December. This increase represents the 30th straight month of year-over-year increases. Sales of existing homes jumped 5.1% in December over November. This jump is a strong indicator of a return to buyer sentiment, despite continuing price increases.
Susan Wachter, a real estate professor at the Wharton School of the University of Pennsylvania and co-author of that 2002 report, noted a surprising development. She explained that recent homebuyers are likely a modest downward influence on mortgage rates. She stated, “It has started; we can already see it in the data,” although she acknowledged that the volume of purchases has not yet reached Trump’s proposed $200 billion.
According to Freddie Mac, as of January 15, the average 30-year fixed mortgage rate sits at 6.06%. That’s a dramatic decrease from 7.04% only a year prior. This decline has made homeownership more accessible. For example, a home buyer who can afford the monthly payment associated with a $450,000 home with a 20% down payment—current principal and interest payments would cost around $2,172 at today’s interest rate. That would be a savings of about $230 per month from last year’s average rate. Over the life of a typical 30-year loan, that works out to almost $84,000 in savings.
Sam Khater, chief economist at Freddie Mac, highlighted the impact of these changes, stating, “The impacts are noticeable, as weekly purchase applications and refinance activity have jumped, underscoring the benefits for both buyers and current owners.”
Even with these encouraging trends, far fewer homeowners are willing to sell their homes. A new analysis from Realtor.com finds that more homeowners are now locked into mortgage rates higher than 6%. That figure has now surpassed homes with ultra-low rates under 3%, locked in during the beginning of the pandemic.
Daryl Fairweather, chief economist at Redfin, remarked on the psychological effects of this situation: “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.”