Are home prices still going up? What's happening with mortgage rates?

Potential buyers remained reluctant to take the plunge on financing a home purchase even as mortgage rates fell for the fourth straight week.

Mortgage applications decreased 2{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} the week ending Dec. 2 compared to the previous week. And the average loan size for a purchase application was at its lowest level since January 2021.

Meanwhile, the average rate for a 30-year fixed mortgage trended down to 6.33{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} as of Dec. 8, according to the latest data from Freddie Mac. The fixed-rate mortgage has more than doubled from a year earlier when it averaged 3.1{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}.

The pandemic-era housing boom, combined with decades-high inflation and volatile mortgage rates, are forcing prospective homebuyers and homesellers to sit on the sidelines and wait for the dust to settle.

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“Mortgage rates decreased for the fourth consecutive week, due to increasing concerns over lackluster economic growth,” said Sam Khater, Freddie Mac’s chief economist. “While the decline in rates has been large, homebuyer sentiment remains low with no major positive reaction in purchase demand to these lower rates.”

What’s happening with mortgage rates?

Over the last four weeks, mortgage rates have declined by three-quarters of a point, the largest decline since 2008, according to Khater.

In late October, the average rate on a 30-year fixed rate mortgage pushed past 7{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}. But with signs that inflation is cooling, the Federal Reserve could ease up on its aggressive rate hikes, and mortgage rates could have peaked, =experts say.

The 30-year fixed-rate mortgage averaged 6.33{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} as of December 8, 2022, down from last week when it averaged 6.49{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}. A year ago at this time, the 30-year fixed-rate mortgage averaged 3.1{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}.

The 15-year fixed-rate mortgage averaged 5.67{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}, down from last week when it averaged 5.76{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}. The 15-year fixed-rate mortgage averaged 2.38{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} a year ago.

“Despite the ongoing decline in mortgage rates that started in October, prospective homebuyers continue to delay decisions to purchase homes, even as home prices flatten or fall,” says Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “The average loan size for a purchase application last week was at its lowest level in nearly two years, another indication that home prices are cooling.”

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How are mortgage rates affecting affordability?

Currently, the typical family cannot afford to buy a median-priced home as the qualifying income exceeds earned income, says Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors.

However, housing affordability rose about 8{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} in the last four weeks as mortgage rates moved closer to 6{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}, she says.

“If inflation continues to slow down, mortgage rates may stabilize near 6{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} in 2023. With a 6{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} mortgage rate, housing will become more affordable for many buyers,” she says. “In this scenario, the typical family will earn about $1,000 more than the income needed to purchase a mid-priced home. With more buyers back in the market, the housing market may turn around at the beginning of the new year.”

FIXED VS ADJUSTABLE MORTGAGE RATE:Mortgage rates top 7{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7}. Is a fixed or an adjustable rate the best bet right now?

What is holding homebuyers back?

Fear of a recession and high mortgage rates have given buyers pause. Many people have been priced out of the market altogether and small drops in the interest rate will not make a difference, said Lisa Sturtevant, chief economist at Bright MLS.

Affordability remains a big constraint in the market. Over the past three years, home prices have increased by more than 40{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} nationally.

“In 2019, a family needed an income of about $52,000 to qualify to purchase the median-priced home, and their monthly payment would have been about $1,220,” says Sturtevant. “Fast forward, homebuyers now need an income of nearly $100,000 to qualify for the median-priced home, and the typical monthly payment has shot up to more than $2,200.”

Even as rates decrease and house prices soften, economic uncertainty continues to limit homebuyer demand as we enter the last month of the year, says Khater.

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Can homebuyers time mortgage rates?

Prospective buyers may be tempted to try to “time” rates to try to jump into the market when rates dip, but timing rates is difficult, says Sturtevant.

Buyers would be better served by shopping for rates and getting quotes from multiple lenders.

“There is a lot of variability in rates, terms, and mortgage products in this changing market,” she says.

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What’s happening with the housing market?

Pending home sales slid for the fifth consecutive month in October, according to the National Association of Realtors. Three of four U.S. regions recorded month-over-month decreases, and all four regions recorded year-over-year declines in transactions.

“October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high interest rates and expensive home prices. Only the Midwest squeaked out a gain.”

Total housing inventory at the end of October was 1.22 million units, which was down 0.8{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} from both September and one year earlier (1.23 million). Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in September and 2.4 months in October 2021.

“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun added. “In October, 24{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8.”

Are home prices still rising?

Even though home prices remain high year-over-year, they’re not increasing at the same pace as the year before.

Whereas last October, the national median existing-home price for all housing types rose by 13{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} from the previous year, in October 2022, home prices rose by only 6.6{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} year-over-year.

The median existing-home price for all housing types in October was $379,100, a gain of 6.6{7e5ff73c23cd1cd7ac587f9048f78b3ced175b09520fe5fee10055eb3132dce7} from October 2021 ($355,700), as prices rose in all regions. This marks 128 consecutive months of year-over-year increases, the longest-running streak on record.

Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.

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