30-year mortgage rate falls below 6% for first time since 2022
A rate with a five at the front will ease affordability slightly and may get some buyers off the fence
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[BOSTON] For the first time since 2022, the average 30-year mortgage rate in the US has slipped below 6 per cent, a milestone that could breathe life into the coming spring home-selling season.
The average for 30-year, fixed loans was 5.98 per cent, down from 6.01 per cent last week, data from Freddie Mac showed on Thursday (Feb 26). By comparison, it was 6.76 per cent a year ago. The last time it was below 6 per cent was in September 2022.
A rate with a five at the front will ease affordability slightly and may get some buyers off the fence. The property market has been in a holding pattern since 2022 when rates shot up, pricing out many would-be buyers and dissuading homeowners from selling because most were holding onto much lower rates.
Now, the question for sidelined buyers is whether that’s low enough. Slow improvements in affordability could make the peak sales season this spring the best in years, said Mike Simonsen, chief economist at brokerage Compass.
“With a sub-6 per cent rate, we will get reliable sales growth across the country,” he said. “But none of it is setting up to have a banner year like 2021 without a dramatic change in the economic data.”
Pending sales of existing homes in January fell to the lowest level in data dating back to 2001, according to the National Association of Realtors, with the market held down by an unusually brutal winter and lingering economic uncertainty.
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Borrowing costs would have to plunge significantly further to fully unlock the housing market, not just because renters remain priced out, but because many homeowners refuse to trade in their existing ultra-low mortgage rates. About seven out of 10 borrowers are locked into rates below 5 per cent, according to data provider Intercontinental Exchange.
However, conditions are at least improving, according to Andy Walden, the company’s head of mortgage and housing market research.
The mortgage payment needed to purchase an average home in the US has fallen to about 27 per cent of the median household income – still significantly above historic norms, but the best in nearly four years, Walden said. But the market needs more buyers and sellers.
“Affordability pressures have been slowly easing, thanks to lower interest rates, softer home prices and rising incomes,” he said. “To keep that momentum going, we will need more homes for sale. When affordability improvements are matched with meaningful inventory gains, it can help sustain reduced pressure on home prices.”
This winter’s storms across the Northeast may have only added to the pent-up demand that’s been building for years. Now, everything hinges on whether the sub-6 per cent rates last long enough to save the sales season.
“There are likely lots of people who would be looking to jump into the market now if it were not February,” said Jake Krimmel, a senior economist with Realtor.com. “The spring buying season will be the big test, if the timing lines up and expectations meet reality.” BLOOMBERG
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