Real-estate interest rates on 30-year mortgages recently took a plunge. Rates have dropped over the past week, lowering the average rate to 7.76%. That is the lowest they have been since late September 2023.
According to data from the BLS released on Friday, November 3, 2023, real estate interest rates fell by double-digit basis points. The 7.76% average rate for the week ending November 2 fell from 7.79% the previous week. However, it is still up from the 6.95% rate a year ago.
Fed Maintains Interest Rate
The new real estate interest rates come just as the Fed announced it would maintain the benchmark lending rate at the current 22-year high. However, the Federal Reserve has yet to rule out a hike before the end of 2023.
Coupled with the ongoing geopolitical conflict in the Middle East, the uncertainty on monetary policy will likely affect the overall economic performance. Additionally, it could stall any improvement in the real estate sector.
Real Estate Interest Rates Remain High
While the 30-year fixed interest rate has dropped slightly, it remains high. The Federal Reserve Chair Jerome Powell noted they were still committed to further rate hikes. Their goal is to bring down inflation to 2% over time.
How Fed’s Rate Affects Mortgage Rates
While the Fed does not set mortgage interest rates, its actions have a direct effect. Mortgage rates often mirror the rate of 10-year US Treasuries, whose rate is a combination of anticipated actions by the Fed, what it ends up doing, and how investors react to it. When Treasury yields are high, so are mortgage rates.
The Treasury Department announced on Wednesday, November 1, 2023, that it would slow the pace of issuing 10-year and 30-year bonds. However, it will continue to issue long-term debt, maintaining upward pressure on real estate interest rates.
Dropping Mortgage Applications
With mortgage rates at an average of 7% since August 2023, mortgage applications have been on a downward trend. Rates will remain high until the Fed’s direction on interest rates becomes clear, according to market analysts.
Market analysts believe that if the Fed does not hike rates and maintain its holdings of mortgage-backed securities until the housing finance market stabilizes, it will lower mortgage rates. Consequently, it would improve home affordability in 2024.
Real Estate Interest Rates Forecast
The high mortgage rates are a combination of various factors. These are inflation and rate hikes by the Fed. While the Fed did not raise rates during its recent policy meeting, mortgage rates could still rise. Some analysts predict an average rate above 8% for 30-year fixed mortgages.
The last time the real estate interest rates were this high was in July 1973. At the time, the 30-year mortgage rate was above 8%. It remained at that level for over 19 years until August 1992.
With the inflation gradually coming down, the likelihood of a recession, and the Fed rate hike sizes coming down, mortgage rates could drop marginally in 2024.
Shop Around for the Best Rates
In the past four years, housing prices have increased nearly 40%, while mortgage rates continue to rise. Additionally, homes up for sale are scarce. Consequently, any potential relief by the Fed would be welcome.
However, new homebuyers can still get better rates based on their credit score and chosen lender. Each lender considers different factors, and by getting quotes from various sources, you could get a great deal.
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