Weeks of Steady Mortgage Rates Boosting Buyer Confidence

On the heels of a dismal January existing home sales report, mortgage rates holding steady around 6% for weeks brings brighter news in the form of increased confidence for some home shoppers who’ve been sitting on the sidelines, experts say, although affordability still remains a challenge.

The latest Primary Mortgage Market Survey® (PMMS®), released by Freddie Mac Thursday, shows the 30-year fixed-rate mortgage (FRM) averaging 6.09%, down from 6.11% the previous week. Over the last several weeks rates have been hovering around this level, which economists note is the lowest we’ve seen them fall to in over three years.

“Bolstered by strong economic growth, a solid labor market and mortgage rates at three-year lows, housing affordability continues to measurably improve,” said Sam Khater, Freddie Mac chief economist. “These factors have caught the attention of many prospective homebuyers, driving purchase application activity higher than a year ago.”

In addition to mortgage application activity being slightly up over last year, refinance activity is up leaps and bounds over last year; government-backed mortgage applications are also up, though the Mortgage Bankers Association says this could be indicative of affordability challenges lingering in the short term.

Meanwhile, a better-than-expected jobs report this week (delayed one week due to the partial government shutdown the first week of the month) gives the Fed more room to stay on pause, even as markets continue to price in two rate cuts later this year, says Realtor.com Economist Jiayi Xu. She said the upcoming January CPI being released Friday is expected to offer a cleaner signal on inflation trends.

“As investors weigh persistent rate pressure against optimism in the labor market, steady wage growth and job security should help support buyer confidence to move forward with a purchase—especially as the spring buying season approaches,” says Xu, but she also cautions, “while the market remains stable, a larger drop in rates will be needed to attract new buyers and sellers and truly reignite the housing market.”

But as the spring market approaches, Bright MLS Chief Economist Lisa Sturtevant said that lower rates are a positive sign for homebuyers who have been waiting to get into the market.

“It is not just about the level…but also about the stability of rates,” she says. “Rates have been fairly stable for the past five weeks after a period of rate volatility driven by economic and political uncertainty. Homebuyers will be more likely to want to get into the market if they have more confident expectations about what rate they will be able to get.”

Sturtevant also noted that falling rates could lead to more supply. “Historically, between 60 and 70 percent of home sellers are also homebuyers,” she said. “So, some would-be sellers have been waiting to sell—or have listed and then delisted their home—holding out for a better rate when they go to make their next home purchase.”

To see the full Freddie Mac report, click here.