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“Welcome development”. With mortgage rates falling for a fifth straight week, experts say the market has “tilted a bit more in favor of buyers” despite continued “affordability constraints”.

Mortgage rates continued to ease for a fifth straight week after the Fed announced its seventh rate hike of the year.

Freddie Mac Chief Economist Sam Cutter points to “softer inflation data and a modest change in the Federal Reserve’s monetary policy” for the continued decline.

The latest Consumer Price Index report from the Bureau of Labor Statistics showed that inflation may be slowing, with prices rising less than expected in November.

And while the federal funds rate rose again this week, it was up just half a point from the previous increase of 0.75 basis points.

“The good news for the housing market is that the recent decline in interest rates has led to stabilization of purchase demand,” says Khater.

“The bad news is that demand remains very weak in the face of affordability barriers that are still quite high.”

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30 year fixed rate mortgages

The average 30-year fixed rate fell slightly to 6.31%, Freddie Mac reported Thursday.

This is down from 6.33% the previous week and 3.12% a year ago.

“For homebuyers and homeowners, the decline in mortgage rates over the past few weeks has been a welcome development,” said George Ratiu, manager of economic research at Realtor.com.

“With more homes available for sale, and more of them sporting price reductions, some buyers are doing the math and finding that falling rates offer better options within their budget.”

Ratiou adds that while mortgage rates returning to the 3% range are unlikely to happen anytime soon, “even a flattening of rates in the 5.5%-6.0% range in 2023 would offer housing markets an improved footing.”

15 year fixed rate mortgages

The average 15-year fixed rate also fell to 5.54%, compared to last week’s reading of 5.67%. A year ago at this time, the average 15-year home loan was 2.34%.

Nadia Evangelou, senior economist at the National Association of Realtors, notes that interest rates are still more than double what they were a year ago, plus home prices are still high due to limited inventory.

He says middle-income buyers, who make $75,000 a year, “face the most significant housing shortage of any other income group.”

“In a balanced market, these buyers should be able to afford half of the homes listed for sale. However, these middle-income buyers can only afford to purchase 20% of all available listings,” writes Evangelou.

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Home price growth is slowing to single digits

Daniel Haley, chief economist at Realtor.com, said last week’s housing data showed a further pullback from both buyers and sellers.

“Whether holiday cheer or a still-gloomy view of current housing market conditions is the bigger driver of the pullback is an open question, but the result is that the balance of the housing market has tipped slightly more in favor of buyers,” Haley writes.

“In fact, the typical price of homes for sale is up ‘only’ 9.5% from a year ago. While this is still higher than the more normal rate of home price growth, this slowdown is the first time in 49 weeks (nearly a year) that median home prices have increased by single digits.”

Haley expects home sales to remain subdued, however, as the Fed keeps interest rates high to curb inflation. More rate hikes are expected in the new year, and policymakers predict the federal funds rate will reach a range of 5-5.25% (it’s currently 4.25-4.5%) by the end of 2023.

Mortgage, refinancing applications see jump

While mortgage rates remain three percentage points higher than a year ago, the recent downturn has encouraged increased activity in both purchases and refinancing.

Mortgage applications rose 3.2%, while the refinance index rose 3% from last week, according to the Mortgage Bankers Association (MBA).

MBA Vice President and Chief Economist Joel Kahn suggests that “financial markets reacted to mixed signals regarding inflation and the Federal Reserve’s next policy.”

“Continued moderation in home price growth, along with further declines in mortgage rates, could encourage more buyers to return to the market in the coming months,” adds Kahn.

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This article provides information only and should not be construed as advice. Provided without any kind of warranty.

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