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Mortgage Rates Post Biggest Drop in 40 Years

According to Redfin’s most recent Housing Market Report, mortgage rates dropped from over 7% last week to 6.6% this week on better-than-expected inflation numbers, a move that will hopefully bring some hope to prospective buyers. 

This drop in mortgage rates was the largest weekly drop recorded in the last 40 years. In addition, slowing home-price growth has returned to pre-pandemic numbers. 

The inflation news last week also led to the biggest single-day mortgage-rate drop on record, which goes back to 1981, as rates dropped to 6.61%. Declining rates are bringing some buyers back to the market; mortgage-purchase applications shot up 4% from the week before during the week ending November 11. 

On average, the typical mortgage payment nationwide is now $2,430, down from the $2,542 see the week prior. To look at it another way, a homebuyer on a $2,500 monthly budget can afford a $380,750 home with today’s 6.6% rates, giving them $12,000 more purchasing power than they had a week ago. That same buyer could have bought a $368,750 home with last week’s 7% rates. 

However, even though rates have come down, they are still more than double what they were a year ago. Pending home sales were down 35% year over year during the four weeks ending November 13, the biggest annual decline on record. Redfin’s Homebuyer Demand Index–a measure of requests for home tours and other homebuying services–was unchanged from the week before but down significantly from earlier this year and last year. 

“The historic drop in mortgage rates is a tick in the ‘good news’ box for the housing market, as lower rates deliver an immediate win for prospective buyers’ pocketbooks,” said Taylor Marr, Redfin’s Deputy Chief Economist. “Until we see more consistent evidence over time of slowing inflation and a bigger, steadier decline in mortgage rates, we expect the impact to be muted. Pending sales and new listings may stop declining, but they aren’t likely to see a major boost until there’s more certainty that the Fed’s efforts to curb inflation are working.” 

“Serious buyers who need to purchase a home as soon as possible can feel good about pouncing on a home this week, knowing it could cost them upwards of $100 less per month than the same home would’ve cost if they’d signed the deal a week earlier,” Marr continued. “More casual buyers may want to wait a few more months, as there’s reason to be cautiously optimistic that the worst of inflation and high rates are behind us and monthly payments could come down more.” 

Leading indicators of homebuying activity according to Redfin: 

  • Mortgage purchase applications during the week ending November 11 increased 4% week over week, seasonally adjusted, the biggest increase since June. Purchase applications were down 46% from a year earlier. 
  • Fewer people searched for “homes for sale” on Google than this time in 2021. Searches during the week ending November 12 were down about 35% from a year earlier. 
  • The seasonally adjusted Redfin Homebuyer Demand Index was flat from the week before during the week ending November 13, but down 37% year over year during the four weeks ending November 13. 
  • Touring activity as of November 13 was down 31% from the start of the year, compared to a 3% increase at the same time last year, according to home tour technology company ShowingTime. 

Key housing market takeaways for 400+ U.S. metro areas:  

  • The median home sale price was $357,500, up 3% year over year, the slowest sale-price growth since the beginning of the pandemic. 
  • Among the 50 most populous U.S. metros, home-sale prices fell from a year earlier in five of them. Prices declined 10% year over year in San Francisco, the biggest drop on record in that metro. Prices declined 1% in San Jose, CA and less than 1% in Detroit, Pittsburgh and Sacramento, CA. 
  • Among the 50 most populous U.S. metros, pending sales fell the most from a year earlier in Las Vegas (-63%), Jacksonville, FL (-58%), Phoenix (-57%), Austin (-56%) and Sacramento (-54%). 
  • The median asking price of newly listed homes was $369,714, up 6% year over year but down more than 7% from a record high of $399,975 in May. 
  • The monthly mortgage payment on the median-asking-price home was $2,430 at the current 6.61% mortgage rate. That’s down 4% from a week earlier, equal to about a $110 decline, but up 43% from a year earlier. 
  • Pending home sales were down 35% year over year, the largest decline since at least January 2015, as far back as this data goes. 
  • New listings of homes for sale were down 19% from a year earlier. 
  • Active listings (the number of homes listed for sale at any point during the period) were up 11% from a year earlier, the biggest annual increase since at least 2015. 
  • Months of supply—a measure of the balance between supply and demand, calculated by dividing the number of active listings by closed sales—was 3.6 months, the highest level since June 2020. 
  • 33% of homes that went under contract had an accepted offer within the first two weeks on the market, little changed from the prior four-week period but down from 40% a year earlier. 
  • Homes that sold were on the market for a median of 35 days, up a week from 28 days a year earlier and up from the record low of 17 days set in May and early June. 
  • 27% of homes sold above their final list price, down from 43% a year earlier and the lowest level since July 2020. 
  • On average, 7.6% of homes for sale each week had a price drop, up from 3.5% a year earlier but down slightly from the previous week. 
  • The average sale-to-list price ratio, which measures how close homes are selling to their final asking prices, fell to 98.6% from 100.4% a year earlier. That’s the lowest level since July 2020. 

Click here to see the report in its entirety. 

About Author: Kyle G. Horst

Kyle G. Horst is a reporter for DS News and MReport. A graduate of the University of Texas at Tyler, he has worked for a number of daily, weekly, and monthly publications in South Dakota and Texas. With more than 10 years of experience in community journalism, he has won a number of state, national, and international awards for his writing and photography including best newspaper design by the Associated Press Managing Editors Group and the international iPhone photographer of the year by the iPhone Photography Awards. He most recently worked as editor of Community Impact Newspaper covering a number of Dallas-Ft. Worth communities on a hyperlocal level. Contact Kyle G. at [email protected]
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