According to data from the National Association of Realtors (NAR), pending home sales rose 2.5% month over month in December. This marks the first increase since May 2022, following six consecutive months of declines.
But what’s driving this positive change in the market? NAR’s chief economist, Lawrence Yun, attributes it to one major factor: mortgage rates. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market,” Yun said.
While the monthly increase in pending home sales (referencing the number of homes being sold, not their prices) is certainly good news, it’s important to note that they are still down 33.8% compared to December 2021 when rates were still in the 3s. However, Odeta Kushi, First American’s deputy chief economist, sees this as part of a larger trend. “We now have multiple leading housing indicators that are pointing to modestly higher sales activity. Mortgage applications have been trending higher alongside lower mortgage rates, pending-home sales are up, and home builder confidence increased in January,” Kushi said.
Speaking of mortgage rates, they fell slightly this week and are expected to stay almost flat ahead of the Federal Reserve’s closely watched interest rate-setting meeting next week. The 30-year fixed-rate mortgage averaged 6.13% in the week ending January 26, down from 6.15% the week before, according to data from Freddie Mac. A year ago, the 30-year fixed rate was 3.55%. As Freddie Mac’s chief economist, Sam Khater, said, “mortgage rates continue to tick down and, as a result, home purchase demand is thawing from the monthslong freeze that gripped the housing market.”
But what about affordability? As mortgage rates trend downward since November, home affordability has also improved. The national median payment decreased 2.9% to $1,920 in December from $1,977 in November, according to the Mortgage Bankers Association. Desirable parts of California will of course have higher payments, due to higher prices. “Borrower demand, thanks to lower mortgage rates, continues to rise in early 2023,” said Bob Broeksmit, MBA president and CEO.
So, what does all of this mean for potential homebuyers? It’s a positive sign that buyer traffic is picking up in many markets, even if inventory is slow to improve. As Xu, the expert said, “High costs and concerns about economic uncertainty had many buyers pausing their purchasing decisions and led to fewer transactions. However, decreased competition may have presented opportunities for some first-time home buyers.”
In summary, the housing market is showing signs of stabilization and improvement, thanks in large part to declining mortgage rates. And as job gains and affordability continue to improve, we can expect to see even more positive changes in the market as we head into the spring. So, if you’re in the market for a new home, now may be the perfect time to start your search!