Mortgages rates dipped below 7% this week for the first time since August — and they could keep sliding further.
After reaching their highest point in the last two decades in late October, mortgage rates have been dropping for the last seven weeks, falling to an average of 6.95% this week for a 30-year-fixed rate mortgage, according to data from Freddie Mac released on Thursday.
“It’s great news for buyers and sellers,” said Oscar Wei, chief economist for the California Association of Realtors.
There are signs, too, that the rate could keep dropping. At their meeting Wednesday, Federal Reserve officials announced they expect to cut interest rates next year even further than previously indicated.
After that announcement, the site Mortgage News Daily — which tracks rates on a daily basis, rather than weekly like Freddie Mac — saw interest rates drop by 20 basis points from the prior day.
Wei expects that next week’s Freddie Mac average, which will take into account the central bank’s announcement, may be even lower.
As borrowing costs drop, Wei expects homebuyer demand will pick up. Still, low inventory will limit just how much sales can heat up.
But declining interest rates may motivate sellers who have been waiting on the sidelines to list, slowly adding to the inventory of available homes.
“You’ll probably start seeing more people put their house on the market,” Wei said. “There may be people who want to trade up or trade down.”
In a sign of increasing buyer demand, mortgage applications for the week ending Dec. 8 were on the rise for the sixth straight week, according to the Mortgage Bankers Association.
“Already, the improvement in rates has led some buyers to brush off their pre-approvals and get an updated look at their new payments based on these lower rates,” he said. “The energy is definitely up.”
Seeing rates decline over the last six weeks also gives potential buyers hope that rates will continue to slide, giving them the opportunity to refinance further down the line, Thomas noted.
Still, home prices are expected to stay elevated above last year, Wei noted. The median price of a home in the nine-county Bay Area was $1.27 million as of October — a 5.7% increase from last year.