Mortgage rates have edged lower in early , offering a glimmer of hope to prospective homebuyers grappling with affordability challenges. The average 30-year fixed rate mortgage currently sits at 6.11%, according to Freddie Mac, a slight increase from 6.10% on , but still below the peak of 7% reached on . This modest decline follows a period of relative stability, with rates remaining at their lowest levels in years.
The movement comes as the Federal Reserve has paused further interest rate cuts, a decision that has largely contributed to the current stability in the mortgage market. While the Fed did cut rates in , experts suggest another cut is unlikely in the immediate future. Ralph DiBugnara, President at Home Qualified, predicts the 30-year fixed rate will average 6.25%, with the 15-year fixed averaging 5.75% in .
Despite the slight easing, the housing market remains sluggish, hampered by years of high prices and limited inventory. Many potential buyers are adopting a “wait-and-see” approach, uncertain whether rates will continue to fall or rebound. Mortgage application activity reflects this hesitancy, with a seasonally adjusted 8.9% decrease in applications for the week ending , according to the Mortgage Bankers Association (MBA). However, refinance applications have surged, increasing 117% year-over-year, suggesting some homeowners are taking advantage of the lower rates to refinance existing loans.
Experts offer varying perspectives on the trajectory of mortgage rates in the coming months. Danielle Hale, Chief Economist at Realtor.com, anticipates rates will remain around 6.25% through the near and medium term, citing a stable labor market and elevated inflation as key factors. Rick Sharga, CEO at CJ Patrick Company, predicts a narrow range of 6.25-6.50% for 30-year loans. Sam Williamson, Senior Economist at First American, forecasts rates will stay in the low-6% range (6.00-6.25%) as the Federal Reserve continues its cautious approach to monetary policy.
Morgan Stanley is among the more optimistic voices, projecting rates could fall to 5.75% later this year. However, this projection hinges on several factors, including movement in the bond market, inflation data, unemployment figures, and overall consumer confidence. The 10-year Treasury yield, which historically runs about 1.6-1.8% higher than mortgage rates, is currently influencing the market, having risen from 4% in late to 4.24% recently.
A potential catalyst for further rate declines could be the planned purchase of $200 billion in mortgage bonds, intended to lower mortgage rates. A narrowing of the mortgage spread – the difference between mortgage rates and the 10-year Treasury – could lead to a 0.50% drop in rates by the end of , according to some analysts.
The recent stability in mortgage rates, coupled with improving affordability and a slight increase in available homes, is viewed as a positive sign for both buyers and sellers heading into the spring home sales season. Sam Khater, chief economist at Freddie Mac, noted the positive impact of these factors. However, the overall impact on the housing market remains to be seen, as potential buyers continue to weigh their options in a complex and uncertain economic environment.
While the current trend suggests a modest easing of mortgage rates, experts caution against expecting significant drops. The Federal Reserve’s pause on rate cuts and persistent inflationary pressures are likely to keep rates within a relatively narrow range for the foreseeable future. Prospective homebuyers should carefully consider their financial situation and consult with mortgage professionals to determine the best course of action.
