Mortgage rates have dropped for the third week in a row, sending some relief to potential homebuyers.
The average 30-year fixed rate for a mortgage reached 6.49%, following a few weeks of decreases from the record highs of over 7% seen last month, according to the Mortgage Bankers Association.
“Mortgage rates declined again last week, following bond yields lower,” said Joel Kan, MBA’s vice president and deputy chief economist. “The economy here and abroad is weakening, which should lead to slower inflation and allow the Fed to slow the pace of rate hikes.
Purchase applications have increased slightly, though rates are not low enough to draw in people to refinance, he added.
The week ending Nov. 11 saw the average rate for a 30-year fixed mortgage drop to about 6.9%, followed by a decline to 6.67% the week ending Nov. 18.
A sign that rates are stabilizing?
Many potential homebuyers have been frozen by the rising, and at times volatile, mortgage rates and have waited on the sidelines in the hopes that rates will fall.
However, it’s still too early to tell where rates will ultimately land, and if this is a permanent plateau, experts cautioned.
“We would hope that this is a trend, that they are going to at least stabilize in the sixes and not bounce back up in the sevens,” said Diane Mastay, mortgage director with Tropical Financial Credit Union in Miramar, Florida.
The Federal Reserve has raised the federal funds rate, or the rate at which banks lend each other money overnight, by about three quarters of a percentage point six times already this year in an effort to tamp down on rising inflation. The Fed has signaled that while it plans to continue with these hikes, it may do smaller increases in the future.
At times, when the federal funds rate rises, mortgage rates typically rise as well, though they are not directly related.
“As part of the Fed’s strategy to control and reduce inflation, which included a series of interest rate hikes, I foresee that we will see rates go up a bit before plateauing,” said J.C. de Ona, southeast division president of Centennial Bank in Florida.
The impact on the buyer
Still, the current drop in mortgage rates could be good news for some buyers, as mortgage rates have been rising over the past six months, reaching levels not seen in almost two decades last month when rates hit over 7%.
New purchase applications on a national level have started to go up in response to the lower mortgage rates, noted the Mortgage Bankers Association. Last week, the seasonally adjusted purchase index increased 4% from the week prior.
“We saw an uptick in mortgage applications when rates slightly dropped. This indicates that buyers are still willing to proceed with purchasing a home while being a bit patient and smart,” de Ona said.
Mastay noted that while applications are down compared to the year prior, Tropical Financial Credit Union has gotten more inquiries from interested potential borrowers recently.
The decrease in mortgage rates does lead to an increase in how much borrowing power a buyer has.
A study from RedFin found that when rates went down to around 6.6% from 7%, it translated to about $12,000 more in purchasing power for a buyer on a $2,500 monthly budget.
“It depends on the mortgage amount contemplated. Even a quarter-percent move can make a large impact on someone,” de Ona added.
Still, the drop doesn’t necessarily mean that buyers will rush to the market, as home prices are still too high for many.
“But people are still sitting on the sidelines a little bit to see if values will correct or come down before they make a purchase,” Mastay said. “Although rates coming down is a great indication, it’s not the only thing making people move to look for a home or to get prequalifed. Home prices are still high.”
