Mortgage Rates Rise Just As Buyers Return to Housing Market

Americans are returning to the housing market even as mortgage rates, which had been declining, increased, suggesting that high borrowing costs are not entirely dissuading prospective buyers from trying to acquire a home, data from the Mortgage Bankers Association shows.

Analysts suggest that the increase in mortgage applications indicates that first-time home buyers and repeat customers are joining the fray and buoying the market.

Mortgage applications spiked by about 10 percent for the week ending January 5, lenders said, a substantial increase from the previous week, and the most it has jumped in about a year, according to data platform Trading Economics.

Interest rates on the 30-year fixed mortgage ticked up to 6.8 percent for the week, up from 6.76 percent from the previous week. Lenders also saw refinancing activity pick up during that span.

“Despite an uptick in mortgage rates to start 2024, applications increased after adjusting for the holiday,” Joel Kan, Mortgage Bankers Association’s Deputy Chief Economist, said in a statement shared with Newsweek. “The increase in purchase and refinance applications for both conventional and government loans is promising to start the year but was likely due to some catch-up in activity after the holiday season and year-end rate declines.”

The jump in rates in the New Year is still lower than the 8 percent peak seen in October giving buyers an incentive to dip their toes into the housing market, Danielle Hale, chief economist at realtor.com, said.

“When you see purchase rates tick up, it’s likely that first-timers are an important part of that share. We’re likely to see some repeat buyers come back into the market too,” she told Newsweek.

The jump in mortgage applications comes at a time when buyers are becoming slightly more optimistic about the prospects of being able to acquire a home as more people believe that rates for home loans will fall over the next year, a survey for market sentiment for December by the lender Fannie Mae showed.

“Mortgage rate optimism increased dramatically this month, with a survey-high share of consumers anticipating mortgage rate declines over the next year,” said Mark Palim, Deputy Chief Economist at Fannie Mae, said in a statement.

Palim suggested that there was increased optimism about the housing market partly due to the decline in rates seen in December when they came down to 6.62 percent from their peak of 8 percent in October.

“For the first time in our National Housing Survey’s history, more homeowners, on net, believe mortgage rates will go down than go up,” Palim said.

Realtor.com’s Hale said that rates hovering in the 6 percent range may be giving potential buyers a psychological boost to enter the market.

“Seeing mortgage rates rise to a high is not fun, but the good thing for buyers and for the market is that it kind of resets their perspective of what mortgage rates could be or should be,” she told Newsweek. “Today’s rates feel lower than they otherwise would because people remember when rates were close to 8 percent and so by comparison a rate that’s in the upper sixes is much better than that nearly 8 percent rate.”

The challenge with the housing market in 2024 will hinge on what happens with prices, experts say. Median sale prices for homes are still elevated jumping by more than a percent in December compared to a year ago, realtor.com data shows.

High prices are not helped by a low supply of homes available for sale. But Hale suggested that with mortgage rates lower than they were last year, it may encourage sellers of used homes to enter the market and that could help with prices, which she suggested are not rising as fast as they were in the past.

“They are kind of holding stable,” she told Newsweek. “They’ve been in this holding pattern for the better part of the last year and that means today’s buyers, who are benefiting from lower rates, are essentially getting about the same price when they’re out shopping now.”