The average rate for a 30-year fixed-rate mortgage experienced another dip, landing at 6.69% this week, as reported by Freddie Mac. Down from 6.81% just last week, this rate shift was just enough to boost purchase applications by 6%, which reflects the pent-up enthusiasm within the housing market. Additionally, real estate investors are positioning themselves to leverage lower rates and take action before the market floods and property prices rise.
Sam Khater, Freddie Mac’s chief economist makes note of this increased activity, stating, “This week, mortgage rates decreased to their lowest level in over a month. Despite just a modest drop in rates, consumers clearly have responded as purchase demand has noticeably improved. The responsiveness of prospective homebuyers to even small changes in rates illustrates that affordability headwinds persist.”
Mortgage Rates Trend Downward to Lowest Point Since October
With the 30-year mortgage rate sitting at 6.69%, we see it edging closer to the previous low rate of 6.54% recorded in October. Although these rates may still seem high, they’re below the 7.03% seen at this time last year.
This round of rate adjustments was influenced by a few factors – the previous day’s ISM service sector report, which came in weaker than expected, and the Bureau of Labor Statistics’ job report, as well as the 10-year treasury yield.
Expectations of a Strong Job Report Shift Mortgage Rates
Those who did their homework anticipated this month’s job report to be stronger than previously reported, and Friday’s numbers confirmed this. The latest report revealed that although the unemployment rate slightly increased from 4.1% to 4.2%, the economy experienced job growth with the addition of 227,000 positions.
Steve Rick, chief economist at TruStage, breaks this down when he states, “This month’s stronger than expected jobs report can be partly attributed to the boost in seasonal positions in preparations for an influx of holiday shopping. After last month’s disappointing report, this boost was much needed following nationwide strikes and a catastrophic hurricane season. This bounce back is a key indicator that while the market was hit heavily by outside forces in October, they did not leave long-term damage to the market, as unemployment is hovering below its natural rate of 4.5%”.
According to the CME FedWatch Tool, the outcome of the jobs report has increased expectations that there will be an additional Fed interest rate cut at this month’s upcoming meeting. As the Fed lowers its benchmark interest rate, mortgage rates are expected to fall further.
The job report also had an impact on Wall Street, pushing the S&P and Nasdaq to record highs.
Related Article: Beyond the Stock Market Rollercoaster: Building Wealth with Rental Income
Mortgage Rates Decrease in Response to Falling 10-Year Treasury Yield
Included in the mix was also the 10-year yield that fell a few basis points. Mortgage lenders tend to use these treasury yields as a guide to price property loans, so rates followed suit and fell right alongside them, as they generally do.
10-Year Treasury Yield drops to 4.17%, its lowest level in 6 weeks 🚨 pic.twitter.com/2i4MIdragV
— Barchart (@Barchart) December 6, 2024
Mortgage Applications Up Following Rate Drop
Total mortgage application volume experienced a notable increase of 2.8% compared to the previous week, as reported by the Mortgage Bankers Association’s seasonally adjusted index. Along with this, there was a rise of 6% in the applications for a mortgage to purchase a home, which is its highest point since as far back as January.
Many of these potential buyers are high-income earners who have the funds to jump into a market that boasts high property prices. “Affordability is still a major constraint for moderate-income buyers. With home prices expected to rise and rates projected to remain in the 6’s through 2025, many of those buyers will still be priced out,” says Lisa Sturtevant, chief economist at Bright MLS.
Related Article: Home Affordability Crisis – Lowest Inventory Level in Nearly Two Decades Pushes Up Demand for Rental Properties
Investors Enter the Market Before Lower Rates Push Property Prices Up
As mortgage rates continue to decline, there’s growing anticipation for the Federal Reserve’s upcoming meeting on December 17-18, where analysts predict another reduction in the benchmark interest rate. Experienced investors are strategically planning a rental property purchase in a race against the Fed’s decision, which will most likely impact mortgage rates. Why is this the case? Because if mortgage rates continue to dip, and buyers begin to flood the market, property prices will surge.
For investors, it’s better to buy before home prices rise, even if mortgage rates are higher. The reason is that once a purchase price is locked in, you can’t change the property price you’ll be paying down for years to come. However, you can always adjust the interest rate later once rates begin to lower. In addition to this, purchasing before prices escalate provides investors with the advantage of increasing property equity.
If you’d like to invest strategically to safeguard your wealth and increase profits, feel free to give the Morris Invest team a call. They can place a cash flowing rental property in your portfolio so you’ll be ahead of the game when it comes to buying before property prices escalate. In the meantime, the following resources can jumpstart your real estate and wealth-building journey:
Before you go, take a moment to view the following video on paying a mortgage off quickly. You can also dive into this article on this same topic – Paying Down Your Property Mortgage in Five Years.
