A significant decline in mortgage interest rates may be spurring newfound interest from prospective homebuyers, according to a consumer survey by Fannie Mae. The survey shows that, for the first time in more than a decade, homeowners are expecting interest rates to decline rather than go up, indicating some optimism for the market. This, combined with an expected increase in the amount of available inventory, may lead more people to begin buying homes again.
Interest Rates Down One Point Since October
The interest rate for a 30-year fixed interest mortgage with conforming loan balances reached 6.62% in the first week of January, a substantial drop from the high of 7.76% it reached in late October and early November. This dramatic decline is attributed in large part to the Federal Reserve pausing its aggressive anti-inflation efforts, which pushed interest rates up. As a result, mortgages are likely to be more appealing to buyers who may have balked at higher mortgage payments.
Inventory Expected to Increase in Near Future
Another good sign that could lead to a more active real estate market is an expected increase in the amount of available inventory. This is due to home building contracts that are expected to approach completion, increasing the number of new homes available for purchase. This, in turn, may spur more current homeowners to sell their existing properties, leading to even more homes coming onto the market.
An Expected Upswing in Prospective Buyers
The combination of falling interest rates and an increase in available housing inventory means that there is a more optimistic view about the housing market in the near future. More housing inventory will help to bring prices down, which will make them even more affordable once interest rates drop. This will hopefully help spur people to purchase homes when they might have previously been reluctant to do so.
High Prices Continue to Suppress Demand
That being said, there are still persistent issues related to high housing prices, which still remain well out of reach of many prospective buyers. Until housing prices drop to a level that is considered affordable, it is likely that demand will remain somewhat suppressed. That being said, if interest rates continue to drop and inventory continues to flow into the market, this issue may be resolved sooner rather than later.
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