Rates See First Decline After Crossing 7%

"After crossing the 7% mark last week, the 30-year fixed-rate mortgage saw its first decline in six weeks," said Sam Khater, Freddie Mac's Chief Economist. "While affordability challenges remain, this is welcome news for potential homebuyers, as reflected in a corresponding uptick in purchase applications," added Sam Khater, Freddie Mac.

Those words from Freddie Mac near the end of January were positive for the mortgage market as home borrowing costs have inched lower but are still well above the near 6% seen in September 2024 for the 30-year fixed rate. In January, rates were relatively steady compared to the significant increases seen in 2022 and 2023. There are still some concerns that inflation is sticky and that borrowing costs could remain elevated or fluctuate slightly. However, there is some hope that inflation will moderate in the second half of this year, which would bring further relief for rates.

Across the nation, there has been some cooling in home prices in certain regions after the big gains seen since 2020. But in many areas, prices are still above pre-pandemic levels. With still tight housing inventory, the environment remains competitive in the home-buying arena.

Refinancing has slowed as homeowners hold onto their low rates that they may have secured when rates were ultra-low, near 3% for the 30-year fixed, in late 2020 and early 2021. When rates decline significantly, refinancing heats up, but for now, most are holding off on any refinancing plans.

On the banking side, some smaller regional lenders have seen revenues decline due in part to low refinancing and the pinch on margins from higher rates. Larger banks and mortgage lenders are still solid, but they may be slightly tightening lending standards.

FHA, VA, and USDA loans are still seeing hefty demand, fueled by first-time buyers and those with less-than-stellar credit. Some state programs are geared towards helping with down payments or offering lower interest rates.

Bottom line: In 2025, we could see some easing regulations for the housing sector, which could provide more starter homes for first-time homebuyers or those renting and thinking of homeownership. If you're secure in your job, the path to a purchase becomes significantly easier.

Source: Mortgage Market Guide