Mortgage rates eased this week after the Federal Reserve announced it would pause interest rate hikes, providing some relief to prospective homebuyers. However, rates remain significantly higher than last year and persistent affordability issues continue to constrain the housing market.
Mortgage Rates Retreat From Recent Highs
After surging to levels not seen since 2008 last year, mortgage rates have shown signs of stabilizing and even slightly decreasing in early 2024.
According to data released Thursday from Freddie Mac, the average rate on a 30-year fixed-rate mortgage dipped to 6.63% this week, down from 6.67% last week . While the dip was small, it marked the second straight week of declines.
Other data tell a similar story. The Mortgage Bankers Association said its weekly measure slipped to 6.67% last week, while Bankrate.com, which uses a different methodology, showed the average 30-year fixed rate dropping to 6.93% .
|30-Year Fixed Mortgage Rate
|Mortgage Bankers Association
The retreat in rates comes on the heels of the Federal Reserve announcing Wednesday that it would raise its benchmark interest rate by 0.25 percentage points, a step down from the 0.50 point hike in December . Mortgage rates tend to track moves in the 10-year Treasury yield, which fell after the Fed decision.
While mortgage rates remain high by historical standards, the recent easing suggests they may have peaked after soaring in 2023. At their high point last year, average 30-year fixed rates topped 7% for the first time since 2002 .
Demand Still Sluggish Due to Affordability Challenges
The slight dip in rates comes as a welcome sign for prospective home buyers after last year’s rapid rise. Lower rates make monthly mortgage payments more affordable.
However, mortgage applications fell 2.3% last week even as rates declined, indicating demand remains sluggish . Home prices also remain near record highs, eroding affordability.
“Mortgage rates stopped rising, but they remain high enough to impact affordability significantly,” said George Ratiu, manager of economic research at Realtor.com. “The record home prices from last year, combined with much higher mortgage rates, pushed the typical home payment 45% higher than 2020 levels.” 
The median listing price in January was $359,000 nationwide according to Realtor.com data. While price appreciation has slowed, home values are still up double-digits from a year ago in many markets. This means buyers need larger down payments and incomes to purchase.
Outlook Remains Uncertain Heading Into 2024
Economists expect mortgage rates to continue easing this year, but sharp declines appear unlikely with inflation still running hot and the Fed focused on cooling the economy.
In its latest forecast, Fannie Mae said it expects rates to average 6.2% in 2023 and 5.2% in 2024 . That’s down from a revised expectation of 6.4% for 2022 but well above pre-pandemic norms.
Other projections are in line with that view. The Mortgage Bankers Association sees rates averaging 5.5% next year while a recent Bloomberg survey of housing experts predicted rates would fall to 5.57% by the fourth quarter of this year .
If rates moderate as projected, it could provide some life support to the housing market after three straight quarters of declines in existing home sales. Lower rates may entice buyers back while also giving current owners incentive to move up.
But ongoing affordability issues mean a return to the frenzied activity of recent years appears unlikely. Expect the housing market to remain subdued as buyers and sellers adjust to the new rate environment.
Mortgage rates have backed down slightly from their recent peak, offering a glimmer of hope for homebuyers battered by last year’s surge in borrowing costs. But persistent affordability issues mean demand is still under pressure. With rates expected to moderate but not return to rock-bottom levels this year, the housing market faces ongoing headwinds. Home price appreciation should continue to cool, but a sharp drop appears unlikely.
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