Americans Are Saving Thousands on Mortgage Payments

The decline in mortgage rates in December may have helped lower monthly housing payments for buyers, real estate platform Redfin said, a development that could encourage Americans to enter the housing market.

The median U.S. mortgage payment fell by $400 during the four weeks ending December 31, a 14 percent drop from October, to $2,361 a month, Redfin said. The company added that demand for homes has increased, with new listings up 10 percent for the year.

"There have been more tours and more offers on my listings since mortgage rates started declining," Las Vegas Redfin Premier agent Shay Stein said in a statement. "It's all about perspective: Two years ago, buyers would have cried about a 6% mortgage rate. Now, they're happy they've dropped down to the mid-6's."

The fall in mortgage rates from their peak of nearly 8 percent in October to around 6.65 percent by the end of December has contributed to the drop in monthly payments, Chen Zhao, Redfin head of economic research, told Newsweek.

"That was a pretty substantial drop and that's what's really been bringing mortgage payments [down]," she said.

That decline in mortgage rates could unlock the housing market, analysts say, particularly in the existing homes sector. This area of the market had been frozen as sellers were reluctant to give up their low rates secured in years past and relocate to homes where they may have to pay for more expensive loans.

But after weeks of decline, the last two weeks have seen a slight spike in mortgage rates.

"Between late October and mid-December, the 30-year fixed-rate mortgage plummeted more than a percentage point. However, since then rates have moved sideways as the market digests incoming economic data," Sam Khater, Freddie Mac's chief economist, said in a statement on Thursday.

The 30-year fixed rate mortgage ticked up to 6.62 percent for as of Thursday, a tad higher than last week's average of 6.61 percent, according to Freddie Mac.

Khater suggested that the expected Federal Reserve rate cuts in 2024, after policymakers hiked rates to two-decade highs to combat rising inflation, will nudge home loan costs lower.

"We expect mortgage rates will continue to drift downward as the year unfolds," he said. "While lower mortgage rates are welcome news, potential homebuyers are still dealing with the dual challenges of low inventory and high home prices that continue to rise."

Home Prices Continue to Be Elevated

Prices continue to be an issue for buyers. The national median sale price was a little over $363,000, an increase of 4.4 percent for the year in what was the biggest increase since October 2022, according to Redfin. Asking prices also rose by 4.3 percent to about $359,000.

Experts have told Newsweek that low supply of homes is the main reason why prices remain elevated. They say that the U.S. is short 4 million homes to meet buyer demand.

Redfin's Zhao said the fall in mortgage rates over the last few weeks has not been accompanied by a drop in prices.

"They never really went down that much during this correction and they're continuing to go up right now," she told Newsweek.

Zhao suggested that the fall in mortgage rates was a much more significant factor when it comes to the question of affordability.

"The change in rates, I would argue, is a much bigger effect on your monthly mortgage payment than prices are actually," she said. "So, a change from an 8 percent mortgage rate to a 6.6 percent mortgage rate is going to have a much bigger effect on your monthly mortgage payment."

Zhao went on to say that in 2024, prices may improve as used homeowners decide to sell, adding more supply of homes available for sale.

"We're seeing a lot more customers at the end of 2023 coming to us to talk to our agents about potentially listing their homes," she told Newsweek.

Even though sellers are typically reluctant to put their properties on the market during the winter months, this is changing as mortgage rates have been going down.

"A lot of people in November or December might be thinking about listing their home, so they're talking to an agent and preparing for that listing to go live in the new year or in the spring," Zhao said.

Lenders appear optimistic about the market in the year ahead.

"Mortgage rates finished 2023 more than a percentage point lower than their peak in October, but applications to refinance and buy a home both declined in the final two weeks of the year," Bob Broeksmit, president and CEO of Mortgage Bankers Association (MBA), told Newsweek in a statement on Thursday.

"MBA expects mortgage rates to continue to decline slowly, which along with more new and existing housing inventory should boost homebuying activity in the months ahead."