February 24, 2024

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Mortgage rates are falling again to near 7%, which is fueling some refinancing activity

Mortgage rates are falling again to near 7%, which is fueling some refinancing activity

Mortgage rates fell for the sixth straight week, hovering just above 7% and breathing some life into the refinancing market.

The 30-year fixed mortgage rate fell to 7.03% from 7.22% the previous week. Freddie Mac reported Thursday. This is its lowest level since mid-August and a decline of three-quarters of a point since the end of October.

While some potential buyers are still holding out on margin despite the decline, homeowners looking for an opportunity to refinance have been quick to act.

“When interest rates began to fall rapidly, purchase orders initially rebounded, but this improvement in demand has tapered off in the past week,” Sam Khater, chief economist at Freddie Mac, said in a statement. “Although these lower rates remain a welcome relief, it is clear that they will have to fall further to stimulate demand more consistently.”

Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a home?

‘Depressed housing market’

With interest rates falling in the past six weeks, some buyers have returned to the market. But the recent decline in interest rates has not stimulated additional activity.

Order volume fell 0.3% on a seasonally adjusted basis for the week ending December 1, according to Mortgage Bankers Association (Master of Business Administration). Overall, buying activity remained 17% lower than last year.

“The rate environment has created constraints in the industry, and the housing market has been stagnant for a year now,” Jeffrey Rubin, president of WSFS Mortgage, told Yahoo Finance. “We’re hanging in there, working off the lows, but we’re not seeing a rebound anytime soon.”

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The decline in activity is mostly due to a lack of inventory in the market, which has led to higher home prices. It also forces buyers to make more expensive monthly payments.

Since May 2022, the buyer of a typical for-sale home listed on a mainstream fixed-rate mortgage with a 20% down payment has been giving up more than a quarter or more of the typical household’s salary, Realtor.com is found. By October, it took 39% of the typical household income to buy a home — and that share is expected to average 36.7% for 2023. That number averages 21%, Realtor.com added.

A sign has been placed in front of new condominiums for sale in Los Angeles. (Mario Tama/Getty Images) (Mario Tama via Getty Images)

To alleviate some of this financial burden, some people have turned to adjustable-rate mortgages (ARMs), which often offer a lower starting rate compared to fixed-rate loans.

“We have a really attractive ARM rate that is about 75 to 100 basis points below the 30-year fixed rate,” Rubin said. “This appears to be an attractive alternative for some borrowers. Others have become frustrated with the existing home market and have moved to new construction.”

Read more: What is an adjustable rate mortgage? Is ARM the right way to go in 2023?

New construction has also been a silver lining for buyers looking for an opportunity to negotiate price reductions, get a lower price through mortgage rate buydowns, or obtain other attractive incentives such as down payment assistance.

However, even this side of the market has shown signs of straining under the pressure of rising interest rates. Sales of new construction homes continued to decline in October – although some experts expect some recovery by the end of the year as interest rates fall.

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“Buyers have recognized that they are in a higher-priced environment. They have really internalized the concept,” Rubin said. “The stock is so weak and difficult that they say, ‘We might take the next step up, or do this sideways move or build something.’ But timing and costs are really the big thing.”

A home in the Gold Coast neighborhood is listed for sale for approximately $6 million on November 13, 2023 in Chicago, Illinois.  The Chicago area is one of the few metropolitan areas in the country that has seen an uptick in interest in the luxury home market, contributing to a more than 14 percent increase in listing prices in the past year.  (Image source: Scott Olson, Getty Images)

A home in the Gold Coast neighborhood is on the market for nearly $6 million on Nov. 13 in Chicago. (Scott Olson/Getty Images) (Scott Olson via Getty Images)

“People date average”

While buyers are still considering their purchasing plans, some homeowners are seizing the opportunity to grab a lower price.

The refinancing index was up 14% from the previous week, according to the MBA Survey of Applications for the week ending December 1, and was 10% higher than the same week one year ago.

“Refinancing applications had their strongest week in two months, increasing year over year for the second straight week for the first time since late 2021,” Joel Kahn, deputy chief economist at MBA, said in a press release. “The overall level of refinancing applications remains very low, but recent increases may indicate that 2023 was the low point of this cycle for refinancing activity.”

A decline in interest rates may be what some new homeowners are aiming for – those who assume a fixed interest rate above 8% or agree to an adjustable-rate mortgage.

“People just lock in the rate, which means they can get something like a fully adjusted loan and hopefully get it in the future, and refinance it at a lower, fixed interest rate,” Rubin said. “Those who have managed to get a home are happy, while those who are still hunting feel frustrated.”

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Gabriella He is the personal finance and housing correspondent for Yahoo Finance. Follow her on Twitter @__GabrielaCruz.

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