Home Borrowing Costs Expected to Stabilize

The multi-decade highs seen for home borrowing costs in October 2023 quickly declined towards the end of the year and gave some relief to the housing sector. Freddie Mac reported that the 30-year fixed rate hit nearly 8% in October and fell to the 6.5% range in mid-January of this year.

The decline was because the markets were expecting numerous rate cuts in 2024 and inflation was easing. But since then, economic data has improved while inflation pressures have reignited. The markets were expecting six rate cuts from the Federal Reserve in 2024 but it has eased to three. Positive economic news and increasing inflation are both negative for the bond markets and borrowing costs.

The latest reading on Existing Home Sales for January, although sort of backward-looking, showed that sales rose 3.1% to an annual rate of 4.00 million. A standout component was that inventories of homes for sale on the market rose 2% to 1.01 million units from the previous month to a three-month supply and up 3.1% from the January 2023 number of 980,000. A six-month supply is seen as healthy.

A caveat...The median existing-home sales price rose 5.1% from January 2023 to a record $379,100 – the seventh consecutive month of year-over-year price gains. This does give homeowners increased equity wealth as prices continue to rise.

A positive slant, "While home sales remain sizably lower than a couple of years ago, January's monthly gain is the start of more supply and demand," said NAR Chief Economist Lawrence Yun. "Listings were modestly higher, and home buyers are taking advantage of lower mortgage rates compared to late last year."

Currently, the spring buying season is just getting underway and despite the positive news, potential home buyers still must deal with high prices and low inventories. But let's look at the bright side. A recent survey from Fannie Mae revealed that homeowner optimism has been at its highest since March 2022.

Bottom line: With the forecast showing that home borrowing costs are not expected to decline in a big nor rise in a big way either, potential spring home buyers are being encouraged to act early, just in case rates do inch lower which would then bring in a lot more competition as far as buying demand.