The average interest rate on the 30-year fixed-rate mortgage in the U.S. dropped to its lowest level since March, offering a glimmer of hope for a housing market grappling with challenges.
Freddie Mac reported the rate fell to 6.77% for the week ending July 18, down from 6.89% the previous week. This marks a significant decrease, though still slightly above last year’s 6.78%.
Despite the decline, homebuyers haven’t rushed to take advantage of the lower rates. Purchase applications remain about 5% below their spring levels.
Freddie Mac’s Chief Economist, Sam Khater, noted that potential buyers might be holding off, waiting to see if rates drop further. “Sometimes as rates decline, demand weakens, driven by buyers making sure rates don’t decline further before they decide to purchase,” Khater explained.
The housing market has been notably impacted by the Federal Reserve’s interest rate hikes since early 2022. In 2023, existing-home sales volume fell to its lowest since 1995, with a persistently tight supply keeping prices high. Many homeowners are hesitant to sell, as they would face higher rates on new mortgages compared to their current, lower-rate loans.
Economists are cautiously optimistic that anticipated rate cuts by the Fed, potentially starting as soon as September, could provide a boost to the housing market by reducing borrowing costs. However, mixed signals persist. While overall housing starts rose by 3.0% in June, this increase was largely due to apartment projects. Single-family home starts, conversely, dropped to an eight-month low.
Next week’s existing home sales data from the National Association of Realtors will provide further insight. Sales of pre-owned homes had already declined for three consecutive months through May, reflecting ongoing market uncertainty. The business community is watching closely, hoping for signs of stability and growth.
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