Mortgage rates retreated to the 6% range this week as waning inflation data gives homebuyers a glimmer of hope.
The average rate for a 30-year mortgage inched below the 7% mark for the first time since mid-February, settling at 6.92% on Thursday, according to Mortgage News Daily.
A separate measure showed that the weekly average for a 30-year loan dropped to 6.88%, according to Freddie Mac, marking the first rate contraction in over a month.
The volatility in mortgage rates has largely tracked broader indicators, including the latest reading on core Personal Consumption Expenditure (PCE) — the Fed’s preferred gauge for inflation — which logged a 2.8% year-over-year gain in January, the slowest growth since 2021.
Jerome Powell, the Federal Reserve’s chairman, reiterated that rate cuts are likely at some point in 2024 during his semi-annual monetary policy testimony to Congress on Wednesday, even after January’s hotter-than-expected inflation report.
But even with a series of positive indicators, the ambiguity around when and how much the Fed may cut rates leaves homeowners with more questions than answers for the time being.
Read more: Mortgage rates hover around 7% — is this a good time to buy a house?
“Despite the central bank’s projection of potential rate cuts in 2024, pinpointing the optimal timing for such a shift has been a challenge,” said Jiayi Xu, Realtor.com’s economist. “Specifically, the risk of a dangerous inflation rebound is looming if rate cuts are made ‘too soon or too much.'”
Mortgage application reacts to lower rates
Once again, homebuyers proved they are sensitive to changes in mortgage rates. After weeks of decline, the volume of mortgage applications increased in tandem with this week’s rate dip.
Mortgage applications increased nearly 10% from one week earlier, according to the Mortgage Bankers Association (MBA). The indicator measuring home purchase applications rose 11%, while refinance activity climbed 8%.
Read more: Mortgage refinancing: How to get started
“Mortgage applications were up considerably relative to the prior week, which included the President’s Day holiday. Of note, purchase volume — particularly for FHA loans — was up strongly, again showing how sensitive the first-time homebuyer segment is to relatively small changes in the direction of rates,” Mike Fratantoni, MBA’s chief economist, said.
Homebuyers also got another unexpected tailwind from the housing market — the number of home listings increased year over year for the fourth consecutive month in February. According to Realtor.com, active home listings increased by 14.8% annually in February, moderating the supply challenge that has been choking the national housing market.
The share of affordable homes on the market — those listed for $200,000 to $350,000 — grew almost 21% compared to last year, a welcome change for many buyers previously priced out of the market.
“While mortgage rates remain elevated, home shoppers who are looking to buy this spring could find more affordable homes on the market than what they saw at the same time last year,” Xu said.
Consumer sentiment has also been improving. Fannie Mae’s Home Purchase Sentiment Index (HPSI), which tracks how buyers and sellers feel about the market, reported that consumers’ feelings about selling a home improved slightly in February. While most Americans are still pessimistic about buying a home, sentiments were more positive than in previous months.
“Despite the recent uptick in rates, consumers remain relatively optimistic that mortgage rates will decrease over the next 12 months,” Doug Duncan, Fannie Mae’s chief economist, said. “If their expectations come true and rates move closer to the 6-percent mark by the end of 2024, as we currently expect, then it’s likely that consumer sentiment on both sides of the transaction will improve, perhaps leading to a further thawing of the housing market.”
However, uncertainty reigns for now.
“Expect more rate volatility ahead as the Fed and investors continue to wait for more conclusive evidence of a return to low, stable, and predictable inflation,” Orphe Divounguy, Zillow’s senior macroeconomist, said.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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