Mortgage rates fell by nearly half a percent this week, marking the biggest week-over-week decline since November 1981.
The average rate on a 30-year fixed mortgage fell to 6.61% from 7.08% a week earlier, according to Freddie Mac, which this week changed its methodology for calculating rates. The drop follows a sharp drop in yields on the 10-year Treasury last week after the government showed inflation cooled last month.
The sudden decrease give home buyers and sellers price-filtered still in the market an inkling of relief, boosting activity in the otherwise sluggish market.
“Decreasing rates incentivized buyers to rush and try to lock rates this weekend, the difference in demand is significant,” Adriana Perezchica, president of Via Real Estate, told Yahoo Money. difficult time to keep up with high rates and house prices. We don’t know how long this dip in rates will last…
This week’s results are also Freddie Mac’s debuts revised methodology, which now collects real-time rates based on loan applications submitted to its automated underwriting system. The new approach has an average difference of less than 10 basis points.
Buyers rush to secure lower rates
Buyers make strategic moves when prices fall. Demand for mortgages spiked last week with the volume of purchase applications increased 4%, according to Mortgage Bankers Association’s recent survey of applications.
When Freddie Mac reported that the average 30-year mortgage had risen 7% last Thursday, the same day the government released new inflation data, which was weaker than expected. That sent the yield on the 10-year Treasury — which mortgage rates tend to track — to plunge by more than 32 basis points to 3,816%, below the 4% average.
The 10-year Treasury bond fell even lower this week, falling to 3.716% on Wednesday.
“Mortgage rates moved very much in line with the collapse of the 10-year Treasury last week. In fact, it was the biggest daily reduction in mortgage rates that I can remember in more than 20 years,” Jeffrey Ruben, president at WSFS Mortgage, told Yahoo Money last week. “The 30-year fixed rate mortgage dropped from just 7% to 6.5% in one day.”
According to Perezchica, the price drop boosted one of his clients’ buying power – raising the borrower’s pre-approved mortgage budget from $430,000 to $490,000.
“My client’s mortgage rate dropped from 8.2% to 6.5% in one day. That’s huge,” said Perezchica. smaller.”
Still, higher house prices and inflationary pressure continue to fuel the problem of housing affordability, especially as historically low rates remain fresh in buyers’ minds. The volume of purchase applications, for example, is still down 46% from a year ago when the rate was at 3.10%.
“Buyers may hesitate to move forward with a transaction if they find the unfair nature of current mortgage rates confusing,” said George Ratiu, manager of economic research at Realtor.com, in a news statement. “Some buyers may want to wait and see if prices will drop further. However, with inflation still north of 7%, the mortgage market is not out of the woods.
Home sellers are still cautious
The slump in demand is disappointing for sellers. Share of respondents in a Fannie Mae survey that said it was a good time to sell dropped from 59% in September to 51% in October.
Home builders are also feeling down about the market, with confidence in the industry falling for the 11th straight month, according to the report National Association of Home Builders.
To encourage buyers in the market, home sellers are slowly adjusting their price expectations.
The share of homes with price reductions was 20.9% in October, up from 10.6% a year ago, according to Realtor.com. In November, 37% of buyers cut prices this month, up from 26% in September, with an average price reduction of 6%. The builder also offers to buy points and purchases for buyers.
It may not be enough for some budget-constrained buyers.
“High rates and elevated house prices have been tough on house sales,” said Perezchica. “Even with this price drop, some buyers I’ve talked to have expressed uncertainty about the potential for a recession and their ability to afford monthly mortgage payments in the near future. They don’t know if now is the right time to buy.”
Gabriella is a personal finance reporter at Yahoo Money. Follow him on Twitter @__gabriellacruz.