Mortgage rates fell for the fifth straight week, bringing more buyers back to the market, but not enough to normalize activity.
The average rate on the popular 30-year fixed mortgage decreased to 7.22% from 7.29% the prior week, Freddie Mac released Thursday. Since the end of October, rates have dropped more than a half-point, but still haven’t dipped below 7% for over three months.
Read more: 5 strategies to get the lowest mortgage rates in 2023
The decline provided some budget relief for buyers during a seasonally slow time of year. Whether more drops are in the offing depends on the Federal Reserve’s next moves on inflation.
“So long as core inflation and economic activity continues to moderate, mortgage rates may finally start to level off,” Orphe Divounguy, senior macroeconomist at Zillow Home Loans, said in a press statement. “The decline in long-dated yields — and the mortgage rates that follow them — is welcome relief for prospective homebuyers. However, if next week’s employment report shows higher-than-expected wage growth in November, then yields could surge back up.”
'The majority of buyers don’t want to buy'
The recent decline in rates has coaxed some buyers back to the market. The volume of purchase applications increased 5% on a seasonally adjusted basis for the week ending Nov. 19, according to the Mortgage Bankers Association (MBA).
Still, overall purchase activity remained nearly 20% lower than a year ago.
“The majority of clients don’t want to buy because they hear rates are very high, and that’s caused them financial uncertainty,” Adriana Perezchica, president of Via Real Estate Group, told Yahoo Finance. “Rates have created resistance … [the cash that goes toward their mortgage is] essentially their daily bread.”
The ongoing low supply of existing homes is also muting activity, the MBA noted, as homeowners remain reluctant to trade up and lose their current low rates. That’s kept home prices elevated and affordability tight.
For instance, even though sales of previously owned homes tanked in October, home prices climbed, data from the National Association of Realtors (NAR) found. The median home price jumped 3.4% year over year to $391,800 — the highest level for the month of October.
“Limited housing inventory is significantly preventing housing demand from fully being satisfied,” Lawrence Yun, NAR’s chief economist, wrote in response to a decline in pending home sales Thursday. “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
Even sales of newly built homes took a blow last month as some rate-spooked buyers postponed their purchase plans.
Homebuilder confidence fell to its lowest point in a year this month, according to the National Association of Home Builders, marking its fourth consecutive monthly drop in sentiment. The decline was driven by the uptick in rates, which at the time were inching closer to 8%.
“People who want to buy now, once we give them their estimated monthly mortgage payment along with their home insurance, property taxes, and loan insurance — the monthly payment seems wild to them,” Perezchica said.
According to the MBA, the national median payment applied by purchase applicants increased to $2,199 in October from $2,155 from the month before. Meanwhile, those purchasing from builders saw payments jump to $2,672 in October from $2,640 in September, the MBA found.
“We’ve all tried to inform our clients that if they buy now they could benefit from concessions such as help with closing costs paid by the seller. We’ve also told them that should economic conditions unfold next year as predicted, they will be able to refinance their home loan. But the response we’re getting is just resistance from buyers,” Perezchica said.
“They say it is better to wait.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.