Cost of Living, Mortgage Rates Keeping Many Homebuyers ‘on the Sidelines’

For the second consecutive week, Freddie Mac’s Primary Mortgage Market Survey (PMMS) has shown a decline in the 30-year fixed-rate mortgage (FRM), as the average FRM fell 26 basis points week-over-week from 7.76% to 7.50% for the week ending November 9. A year ago at this time, the 30-year FRM averaged 7.08%.

Markets have had a week or so to adjust the Fed’s latest pause in rate hikes or reductions, and again has opted to forgo a change in the nominal interest rate at the conclusion of their two-day meeting on November 1.

“As Treasury yields decline, the 30-year fixed-rate mortgage dropped a quarter of a percent, the largest one-week decrease since last November,” said Sam Khater, Freddie Mac’s Chief Economist. “Incoming data show that household debt continues to rise, primarily due to mortgage, credit card and student loan balances. Many consumers are feeling strained by the high cost of living, so unless mortgage rates decrease significantly, the housing market will remain stagnant.”

Also this week, the 15-year FRM averaged 6.81%, down from last week when it averaged 7.03%. A year ago at this time, the 15-year FRM averaged 6.38%.

“The option for an additional future rate hike is still on the table as more economic indicators are needed to determine whether the current policy is ‘restrictive enough’ to bring inflation back to the 2% target,” noted Realtor.com Economist Jiayi Xu. “Meanwhile, the October jobs report, which revealed moderate job growth and reduced wage pressures, may instill confidence among policymakers that the economy will continue to progress in the desired direction without the need for additional rate hikes in the coming months. As the possibility of a rate hike remains on the table, investors are likely to exercise caution in their positioning, and the expectations for rates to stay steady to slightly higher remains.”

But was the steep week-over-week drop-off in rates enough to attract prospective buyers into the purchase market?

According to the Mortgage Bankers Association (MBA), the week-over-week slip brought some life back to the purchase market, as overall application volume rose 2.5% week-over-week.

“Applications for both purchase and refinance loans were up over the week, but remained at low levels,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “The Purchase Index is still more than 20% behind last year’s pace, as many homebuyers remain on the sidelines until more for-sale inventory becomes available.”

Affordability hurdles remain, despite the dip in rates and rise in apps, as low inventory and high prices are keeping many on the sidelines.

“With the 30-year fixed mortgage rates persisting at their two-decade highs for seven consecutive weeks, significant challenges have arisen for homebuyers,” added Xu. “While the median listing price in October 2023 stood at the same level as last year, elevated mortgage rates have resulted in a significant increase in the cost of financing a typical home for sale. According to Realtor.com's October 2023 estimates, this increased monthly costs over $166, representing a 7.4% rise compared to the previous year–a new record surpassing what was already the highest amount since Realtor.com began tracking this data in mid-2016. In addition, it has raised the required annual household income for purchasing a median-priced home by $6,600, reaching a total of $120,000.”