Housing Market Crash: Mortgage Rates Drop to 7-Month Low

Source: shutterstock.com/Lerbank-bbk22

Housing market crash rumors are swirling as mortgage rates fall to their lowest level since May 2023. Indeed, the 30-year mortgage dropped to 6.60% on Thursday, down from 6.66% just one week ago.

What does this mean for housing?

Well, elevated lending rates have been a thorn in the housing market for the better part of the past year. Easing rates should help sort out some of rough patches in the market.

Lending rates have been heading downward since the central bank first announced it plans to cut rates at least three times in 2024. As such, today’s news fits nicely with the trend of rates coming down.

And coming down they are — 6.6% isn’t just the lowest in months, it’s well below this cycle’s previous 8% peak. The news is especially promising for homebuyers, who have been shackled by a housing affordability crisis in recent years.

“Mortgage rates decreased this week, reaching their lowest level since May of 2023,” said Freddie Mac Chief Economist Sam Khater in a statement. “This is an encouraging development for the housing market and, in particular, first-time homebuyers who are sensitive to changes in housing affordability. However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale.”

What Do Falling Mortgage Rates Mean for a Housing Market Crash?

It seems hopeful homebuyers are already responding to easing lending rates. Indeed, banks are reporting a notable rise in mortgage applications, which have climbed 10% from a week prior, according to the Mortgage Bankers Association (MBA).

This increase breaks down into an 11% increase in refinance applications and a 9% jump in purchase applications when comparing the week of Jan. 12 to the week before.

By all accounts, the data shows that the housing market is starting to pick up steam after a notable drought in demand over the past year.

“If rates continue to ease, MBA is cautiously optimistic that home purchases will pick up in the coming months,” noted MBA Vice President and Deputy Chief Economist Joel Kan.

That isn’t to say it’s all on the buyers’ side, however. According to Redfin data, the percentage of homeowners with mortgages under 6% fell to 89% from 93%. This is evidence that homeowners are finally comfortable putting their properties on the market, no longer shackled by fears of sky-high mortgages on their next new home.

Home listings are up 9% annually this month. A recent survey also shows that 21% of homeowners are considering selling their home in the next three years, up from 15% the year prior.

The big picture? The housing market is finally showing signs of rebalancing.

“I’m advising house hunters to start making offers now because the market feels pretty balanced. Interest rates are lower, and there are more listings, but there’s not much competition yet,” said Heather Mahmood-Corley, a Redfin Agent. “With activity picking up, I think prices will rise and bidding wars will become more common.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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