Mortgage rates edged lower this week, remaining at their lowest point since September, but the decline is likely not enough to materially revive housing confidence that’s near all-time lows.
The rate on the average 30-year fixed mortgage decreased to 6.31% this week from 6.33% the week prior, according to Freddie Mac. Rates have plunged in the last month, after signs of cooling inflation could mean the Federal Reserve will slow its aggressive interest-rate hikes.
The continued decline in rates prompted some buyers to secure lower rates, but with rates 3 percentage points higher than where they were at the start of the year, most first-time homebuyers remain priced out of the market.
“There was a small uptick in activity, but nothing really significant,” Scott Sheldon, branch manager at New American Funding, told Yahoo Money. “Most buyers that are trying to take advantage of lower rates in some areas of the country are either repeat buyers or investors. The ones that have been hurt the most by affordability are truly those first-time buyers.”
First-time buyers still sidelined
Demand for mortgages jumped 3.2% last week compared with the week prior, according to the Mortgage Bankers Association’s latest survey of applications, with purchase activity rising 4%. Still, purchase applications were down 38% from a year ago, the MBA cited, with most of the declines driven by a drop in first-time buyers.
“The buyers in the best position are those who have already paid down their home or are downsizing to a smaller home or lower-class mortgage who can leverage the equity in their current home to potentially pay cash,” Danielle Hale, chief economist at Realtor .com, told Yahoo Money. “They’re not going to be as affected by mortgage rates.”
Affordability, though, remains an issue for those trying to buy for the first time.
For instance, at last week’s 6.33% rate, the average $2,263 monthly mortgage payment accounts for 30% of the monthly salary of a household earning a median income of $90,654. That’s after putting at least 10% down median home listing price of $405,000, according to figures provided by Realtor.com.
“The ones hurt by affordability in this real estate climate are first-time homebuyers putting down 3% or 5% [down],” Sheldon said. “They are the ones most susceptible to interest rate fluctuation, people [who] are trying to make ends meet and get their foot in the door on that high ticket purchase.”
Sellers grapple with lower demand
Weakened homebuyer demand is taking a toll on sellers who now have to be more open to negotiations.
For instance, the share of homes with a price reduction in November was 19.6%, up from 9.2% a year ago, according to Realtor.com.
Approximately 37% of builders also cut their prices in November, up from 26% in September, with an average price reduction of 6%. Mortgage rate buy-downs also rose from 19% to 27% within the same time frame, the National Association of Homebuilders found. Overall, roughly 59% of builders reported having used incentives in November to try to bring back more buyers into the market.
“Sellers are adjusting their price expectations,” Adriana Perezchica, president of Via Real Estate Group, recently told Yahoo Money.
It appears to be helping some. Housing confidence increased in November for the first time in nine months, according to Fannie Mae. The share of respondents who said it’s a good time to sell also rose to 54% in November from 51% in October.
Still, home buying and selling confidence remain well below year-ago levels, and are down on net 28 and 38 points, respectively. According to Fannie Mae, while confidence in November increased 0.6 points to 57.3, that figure is just above the “all-time low” record set the month prior.
And 62% of respondents expect rates to rise further next year, which would further erode affordability and discouraged would-be sellers to list their homes, according to Doug Duncan, Fannie Mae’s chief economist.
“We expect mortgage demand to continue to be curtailed by affordability constraints,” Duncan said in a news statement. “Homeowners with significantly lower-than-current mortgage rates may be discouraged from listing their property and potentially taking on a new, much higher mortgage rate.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.
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