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Massachusetts Home Buyer Guide


Will Declining Interest Rates Increase Home Buyer Competition?

Dec 15, 2023 5:42:25 PM

Recent mortgage interest rate news has been music to the ears of prospective home buyers shell-shocked by the spike in rates over the late summer and fall.

Mortgage Loan Interest RatesMortgage loan interest rates reached 8 percent in mid-October but have fallen nearly 1.5 percent, providing home buyers with some relief from higher monthly mortgage payments.

According to the Mortgage News Daily (MND) Rate Index, interest rates reached 8.03 percent on October 19, 2023. As of the close of business Friday, December 15, 2023, MND reported interest rates nationally were 6.62 percent. The MND Rate Index tracks the day-to-day movement in mortgage interest rates. Depending on your situation, you might find a local lender with even better rates.

While lower rates are welcomed by prospective home buyers who have struggled with affordability or remained on the sidelines until rates dropped, a relatively quiet market may heat up in the new year with lower rates. Home buyers who can afford to start looking more seriously before the competition for homes heats up should prepare now.

"Potential homebuyers received welcome news this week as mortgage rates dropped below seven percent for the first time since August," Freddie Mac's Chief Economist Sam Khater said. "Given inflation continues to decelerate and the Federal Reserve Board's current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year."

Data from Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending December 8, 2023, showed lower rates have started to spur activity. The number of consumers who filled out a mortgage application to purchase a home (as opposed to refinancing) rose 4 percent compared to the prior week. Since December 8, 2023, rates have dropped about half percent, so next week's data likely will show more consumers gearing up to buy. The MBA Refinance Index increased 19 percent from the week before and jumped 27 percent during the same week one year ago. 

What's next? We may not know what the next trajectory of rates looks like until the second week of January after the next Consumer Price Index (CPI) data comes out. The rate of inflation slowed in November. If the January numbers show a similar trend in December, mortgage interest rates may decline further.

How should home buyers utilize the above intelligence? If you're not pre-approved for a mortgage, do it sooner rather than later. Talk to a buyer agent for a referral to loan officers with mortgage programs suited for your situation. Don't get obsessed with interest rates. You can only lock in an interest rate once you find a home. Also, if rates drop further after you purchase, you can refinance like many homeowners have done in recent weeks.

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Topics: Mortgages 101, Mortgage Rates & News


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