Following a painful year for the housing market that saw mortgage rates shoot up to just over 8% after years of historically low rates, monthly mortgage payments have finally fallen back down to their lowest level in nearly a year, according to a newly released Redfin report. But it’s still rough, as Las Vegas agent Shay Stein told Redfin for the report: “Two years ago, buyers would have cried about a 6% mortgage rate. Now, they’re happy they’ve dropped down to the mid-6’s.”
The median mortgage payment was $2,361 during the four weeks ending Dec. 31, 2023—down $372, or 14%, from October’s all-time high, Redfin data journalist Dana Anderson wrote. She cited a change in the weekly average mortgage rate, which fell to 6.61% at the end of December from a 23-year high of 7.79% in late October. The falling mortgage rates coincide with concerns over the economy subsiding in the wake of cooling inflation, as seen by falling yields for the 10-year Treasury yield. In short, the cheaper the yield, the less the market is seen to be worrying about inflation in the future, and that’s good for cheaper mortgage rates.
The average 30-year fixed mortgage rate is currently sitting at 6.76%, so it’s still a far cry from the 3% rates that filled the pandemic, but it’s much better than an 8% mortgage rate. Consider this: Last October, a typical homebuyer would have spent more than 40% of their income on their mortgage payment, according to an earlier Zillow report; that was an all-time high, although Zillow’s data only goes back to the 1990s.
That being said, demand is starting to pick back up. Apart from lower mortgage rates, new listings are up nearly 10% on an annual basis. That’s an indication that the lock-in effect, which refers to homeowners who have locked in low mortgage rates and refuse to sell for fear of losing those low rates, could be easing up. There’s now close to four months of supply, which is considered balanced—but given that it’s on the lower end of the scale, it still indicates conditions associated with a seller’s market, as Redfin suggests.
Homebuyer demand index ticks up
Redfin’s homebuyer demand index, which measures requests for home tours and other services, is also up 10% from the previous month, its highest level since August, Anderson wrote. Additionally, while pending home sales are down over 3% year over year, it’s the smallest decline in two years, according to Redfin.
“There have been more tours and more offers on my listings since mortgage rates started declining,” Stein said in the report.
But it’s not all good news. In the four weeks ending Dec. 31, 2023, the median home sale price was $363,371, a 4.4% increase from the previous year. That is also the biggest increase since October 2022, according to Redfin. The median asking price has also increased 4.3% year over year to $359,236.
In early December, Redfin chief economist Daryl Fairweather shared her outlook for this year’s housing market. One of her predictions was that home prices would fall 1% year over year in the second and third quarters and be flat in the first and last quarters of this year. Still, that small decline “will mark the first time prices have declined since 2012, when the housing market was recovering from the Great Recession, with the exception of a brief period in the first half of 2023,” she wrote at the time.
Another prediction was that mortgage rates would gradually decline, falling to about 6.6% by the end of year. However, affordability isn’t necessarily set to improve a whole lot given home prices rose substantially during the pandemic fueled housing boom and mortgage rates have still more than doubled in just a few years. “Home prices will still be out of reach for many Americans, but any break in the affordability crisis is a welcome development nonetheless,” Fairweather wrote.
And while monthly mortgage payments have fallen to their lowest level in nearly a year, they’re still up more than 5% from a year earlier.
