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The average 30-year fixed mortgage rate, tracked by Mortgage News Daily, peaked at 7.52% in April this year but has since decreased to the current average rate of 6.37%.
How has this small improvement in rates and housing affordability impacted the housing market?
So far, the impact has been minimal.
The Mortgage Purchase Application Index, a leading indicator for existing home sales, has been lingering at multi-decade lows, indicating that existing home sales continue to stay in recession since the summer of 2022.
Why hasn’t the recent rate decrease led to more purchase activity? Housing experts have shared various perspectives.
“It appears that some home shoppers have adopted a deflationary-like mindset,” noted Ali Wolf, Zonda’s chief economist. “Many prospective buyers are delaying their purchases, anticipating further rate reductions.”
According to Nick Timiraos, chief economics correspondent of the Wall Street Journal, affordability is a significant factor. “Given the recent jump in rates alongside rising prices, we might be reaching a limit on the number of buyers who can afford to purchase homes,” he explained.
ResiClub believes that without a substantial improvement in housing affordability, the recovery in existing home sales will likely be slow and gradual. High switching costs are hindering resale turnover, as elevated mortgage rates have made transitioning to higher monthly payments a financial challenge for many.
As housing affordability improves over time, whether through lower mortgage rates, reduced prices, or increased incomes, more sellers and buyers are expected to enter the market, leading to an increase in existing home sales.
While mortgage refinancing has seen some growth recently, as borrowers with higher rates attempt to take advantage of the rate dip, it is not yet considered a refi boom. However, it is a noticeable improvement from the lows experienced during the mortgage rate shock.
What would it take for a significant change to occur in the housing market?
According to Gordon Miller, owner of Miller Lending, a 30-year fixed mortgage rate of 5.5% or lower would likely lead to increased demand and supply for purchases, triggering a potential refi boom.
