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U.S. Mortgage Rates Keep Dropping, Offering Hope for Home Buyers

In a welcome trend for home buyers grappling with the challenges of the least affordable housing market since the 1980s, U.S. mortgage rates continued their downward trajectory this week. The decline, which began in early December, marks the ninth consecutive week of falling rates, bringing relief to those navigating a challenging real estate landscape.

According to data released by Freddie Mac on Thursday, the 30-year fixed-rate mortgage rate averaged 6.61% in the week ending December 28, down from 6.67% the previous week. This shift represents a significant improvement for homebuyers compared to the 6.42% average recorded a year ago. The consistent decline in rates over the past two months can be attributed to the anticipation of Federal Reserve rate cuts expected to commence next year.

Freddie Mac’s chief economist, Sam Khater, commented on the situation, stating, “The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down.” Despite the stabilization, experts caution that holiday-driven fluctuations may introduce some noise into the data.

Realtor.com economist Jiayi Xu urged caution in interpreting the latest mortgage rates, emphasizing the seasonal nature of the market during this time of the year. While the current decline in rates is a positive development, it may not immediately translate into a significant sales recovery, given the persistent challenge of limited housing inventory propping up home prices.

Looking ahead to 2024, economists anticipate further declines in mortgage rates. Federal Reserve officials have recently projected a median of three rate cuts next year. These potential rate cuts are expected to exert downward pressure on mortgage rates, as the central bank’s actions play a pivotal role in influencing borrowing costs.

Mortgage rates closely track the yield on 10-year U.S. Treasuries, responding to expectations and reactions related to the Fed’s policies. Despite the ongoing decline in mortgage rates, the real estate market’s recovery is tempered by the scarcity of housing inventory, contributing to the resilience of home prices.

While the current environment hasn’t yet translated into a substantial rebound in sales, industry experts express optimism about a potential nascent recovery in the housing market if inflation continues to decelerate in the coming year.