Mortgage Rates Move Closer to ‘Sweet Spot’ for Buyers

As NAR economists predict a fall below 6% by year’s end, new data reveals the rate threshold at which the market would likely be flooded with buyers.
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Mortgage rates fell for the fifth consecutive week, continuing to help improve affordability for budget-conscious home shoppers this spring. The 30-year fixed-rate mortgage decreased to 6.27% this week, Freddie Mac reports. Rates could be headed below 6% in the coming months as inflation eases, says Nadia Evangelou, senior economist and director of real estate research at the National Association of REALTORS®.

Mortgage demand is picking up as rates drop, showing that buyers are sensitive to fluctuations in borrowing costs. Mortgage applications for home purchases rose 8% last week compared to the previous week, the Mortgage Bankers Association reported on Wednesday.  

“Falling mortgage rates create opportunities for many buyers,” Evangelou says. “A lower mortgage rate brings down the monthly payment for a home loan. If rates drop to 6%, 3.1 million more households will once again be able to afford to buy the median-priced home compared to the beginning of the year.”

However, a rate of 5.5% may be the tipping point for many would-be buyers to come off the fence, shows a new survey of more than 1,300 homeowners and renters conducted by John Burns Real Estate Consulting. Seventy-one percent of prospective home buyers who plan to purchase their next home with a mortgage say they’re not willing to accept a mortgage rate above 5.5%.

Lower Inflation Likely Will Push Rates Lower

This week’s drop in mortgage rates coincided with news that inflation decreased last month. “These trends, coupled with tight labor conditions, are creating increased optimism among prospective home buyers as the housing market hits its peak in the spring and summer,” says Sam Khater, Freddie Mac’s chief economist.

The consumer price inflation index was at 5% in March, marking a vast improvement from 9% last summer and 8% in the fall. NAR Chief Economist Lawrence Yun says that 2% is the ideal inflation rate—but that may still be a year away. “This directional improvement is a clear signal to the Fed to change its tightening monetary policy, especially considering that many regional banks are still on the edge of further risk if interest rates blow up,” he says.

The latest inflation data showed a deceleration in rent. Rent is still up 8.8% from a year ago, but the monthly gain was only 0.45% over the past year. “It was inevitable for rent growth to soften, considering the robust apartment construction,” Yun notes. “Mortgage rates slipping down to under 6% looks very likely toward the year’s end.”

Freddie Mac reports the following national averages with mortgage rates for the week ending April 13:

  • 30-year fixed-rate mortgages: averaged 6.27%, dropping from last week’s 6.28% average. Last year at this time, 30-year rates averaged 5%.
  • 15-year fixed-rate mortgages: averaged 5.54%, falling from last week’s 5.64% average. A year ago, 15-year rates averaged 4.17%.