Mortgage rates in the U.S. fell to their lowest point since May after the Federal Reserve signaled the end of its tightening cycle and penciled in rate cuts for the coming year.
The drop of mortgage rates below the 7 percent mark, according to Mortgage News Daily (MND), aligns with the central bank's decision on Wednesday to continue to pause rate hikes, which caused Treasury markets—what mortgage rates are pegged to—to fall. Fed Chair Jerome Powell's dovish comments on the potential for future rate reductions rippled through financial markets, leading experts to suggest a gradual thawing of the housing market in 2024.
The reduction in borrowing costs could be a turning point for a real estate sector that has been deeply affected by the rate surges of the previous year, Michele Raneri, vice president of U.S. research and consulting at TransUnion, told Newsweek.
MND's data shows that the 30-year fixed-rate mortgage decreased to an average of 6.62 percent on Thursday, a considerable drop from the 8.03 percent peak recorded in October, and continues the several-week trend of falling rates.
The decline in mortgage rates could not be timelier for the market, according to experts. With rates at their lowest since spring, the door opens wider for first-time buyers and those considering refinancing.
"A reduction in interest rates could not only help in stimulating the mortgage origination market, but could also provide an opportunity for millions of consumers who have recently taken on high interest mortgages to refinance and see significant impacts to their monthly budgets," Raneri told Newsweek.
While data shows that some homeowners who took on high rates are already taking advantage of the Fed's policy—the Mortgage Bankers Association reported a 19.42 percent increase in refinance applications week over week—economists like Sam Khater from Freddie Mac say rates have to dip further to produce real demand.
"Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand," Khater said in a December press release.
The central bank maintained the federal funds rate at a range of 5.25 to 5.5 percent, influenced by a downward trend in inflation from a 9 percent peak in June to 3.1 percent in November, and projected a future of three rate cuts in 2024.
As the Fed contemplates a more accommodating monetary policy, potential homebuyers in 2024 may experience relief from the high borrowing costs that have stifled market activity.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
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