Housing Market Warms Up: Rates Drop, Listings Rise

Redfin, a real estate brokerage, suggests a potential shift in the housing market favoring buyers, with declining mortgage rates and an uptick in property listings. The 30-year fixed mortgage rate, which peaked at over 8% in early October, has now fallen to 7.03%, signaling a 23-year high.

This rate decrease has spurred a 15% increase in mortgage applications since early November, contrasting with the 28-year low they hit previously. Additionally, new home listings have surged by 7% compared to last year’s period marked by rising interest rates, indicating a rise in applications to purchase homes.

However, this potential market thawing is showing signs of slow progress. Fannie Mae’s recent release acknowledges the lower rates as a welcome change but emphasizes the necessity for further drops to consistently stimulate demand, as the growth in applications is starting to decelerate.

The recent decline in mortgage rates is attributed to investor beliefs that the Federal Reserve has paused its interest rate hikes. From March 2022 to July 2023, the Fed significantly increased its benchmark rate, making mortgages more expensive and prompting existing homeowners with lower-rate mortgages to hold onto their properties, contributing to low housing inventory and subsequent price surges.

While recent improvements might signal change, they have limited impact in reversing the existing trend. Over the past year, the median sale price of homes in the U.S. rose by 4.1% to $364,166. However, the surge in mortgage rates led to a staggering 15% increase in the median monthly mortgage payment, now at $2,561—a notable contrast to three years ago.

The key to sustained change, according to experts, lies in a significant increase in available homes for sale. Redfin notes a rise in new listings and a slowdown in the decline of older listings in certain markets, such as Portland and Houston, with prices decreasing in five of the 50 largest U.S. metro areas. The company predicts this trend will expand to more cities in 2024 even as mortgage rates slightly decline.

Overall, Redfin anticipates approximately 4.3 million home sales in 2024, marking a 5% increase from 2023, with mortgage rates expected to dip further to 6.6% by year-end.