A sub-7% mortgage rate brings holiday cheer

The holidays have come early for the mortgage industry. Mortgage rates fell below the 7% threshold this week as markets prepared for Federal Reserve Chairman Jerome Powell’s announcement on Wednesday.

The 30-year, fixed mortgage rate averaged 6.95% for the week ending Dec. 14, according to Freddie Mac‘s Primary Mortgage Market Survey. That’s down from last week’s 7.03% and up from 6.31% the same week a year ago.

Meanwhile, HousingWire’s Mortgage Rates Center showed Optimal Blue’s average 30-year fixed rate on conventional loans at 6.9% on Thursday. On Mortgage News Daily, the average 30-year-fixed rate mortgage on Thursday had fallen to 6.62%, the lowest reading since May and about 140 basis points lower than the cycle’s high of 8.03% in October. 

“Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year,” Sam Khater, Freddie Mac’s chief economist said in a statement.

Powell on Wednesday announced that the Fed anticipates making three 25 basis point rate cuts in 2024 and four in 2025, which should help bring mortgage rates further down in 2024.

Several loan officers on Thursday told HousingWire they were quoting borrowers in the mid-6% range on standard 30-year-fixed loans. One LO said he quoted an FHA borrower at 5.7%.

A promising winter market

Business for the mortgage industry has picked up considerably since Thanksgiving, with homebuyers jumping on lower rates. Meanwhile, new listing activity also inched up slightly in recent weeks, another good sign for homebuyers who have more options.

In today’s market, about two-thirds of outstanding mortgages still feature rates below 4%, and over 90% feature rates lower than 6%. This harms inventory as homeowners are reluctant to let go of their low mortgages. 

However, this situation could change in 2024, according to Bright MLS Chief Economist Lisa Sturtevant. Life changes, whether family or financial, will push more homeowners out of their homes, even if it means giving up their low rates. 

“With rates falling and new listing activity up, expect that the unusually busy December market will continue into January as some buyers and sellers will be out there trying to beat others before the spring market,” Sturtevant said in a statement.