Declining Mortgage Rates Revive Housing Market Interest

The housing market has seen an early boost in 2024, likely sparked by a significant drop in mortgage interest rates in December. The rates have plummeted by about a full percentage point since October, fueling optimism among consumers who expect further declines.

December marked a pivotal shift in consumer sentiment regarding mortgage rates, with more homeowners anticipating a drop rather than an increase for the first time since the survey began in 2010, according to Mark Palim, Fannie Mae’s deputy chief economist. This shift follows a recent bond market rally that bolstered rate optimism, particularly among homeowners and higher-income groups.

The rollercoaster ride of the 30-year fixed-rate mortgage saw record lows below 3% in 2020 and 2021, triggering a surge in home buying and price escalation. However, rates more than doubled in 2022 and hit a 20-year high in October 2023, hovering around 8%, before moderating to below 7% by December—still significantly higher than three years ago.

Buyer activity is picking up, with reports of robust open house traffic and a resurgence of interest from individuals previously on the sidelines. Real estate agents like Paul Legere are witnessing increased foot traffic at open houses, signaling a resurgence in earnest home searches.

Anticipation of improved mortgage rates may prompt more homeowners to list their properties for sale, potentially alleviating the ongoing supply shortage that has kept prices high and hindered buyers.

Despite December’s uptick in demand, much hinges on future interest rates and home prices. The continuing rise in prices, driven by constrained supply, could accelerate further if rates continue to drop, potentially expanding affordability for prospective buyers.

The trajectory of mortgage rates depends on economic strength and inflation trends. Projections indicate a potential drop into the 5% range or even the high 4% range if economic conditions remain consistent, though this could shift based on economic data in the coming months. As of now, the average rate for a 30-year fixed mortgage sits at 6.76%, slightly up from the December low of 6.61%.