First-time Homebuyers Get Good News as Mortgage Rates Drop

Mortgage rates are declining, with the average rate on a 30-year fixed mortgage dropping to 6.69% from 6.81%. Freddie Mac’s chief economist Sam Khater stated, “This week, mortgage rates decreased to their lowest level in over a month.” As of December 12, rates fell further to 6.6%. Join in this slideshow as we investigate this trend in more detail.

Real estate expert Barbara Corcoran noted that a further drop in mortgage rates could significantly boost homebuying. However, she expressed uncertainty about whether rates would reach that level again. Currently, about 80% of mortgage holders have rates below 5%, leading many potential buyers to hold off on purchasing.

Corcoran said, “If mortgage rates drop to anywhere within the 5% range, it could trigger ‘incredible’ homebuying activity.”

Corcoran added, “Rates have been bouncing around for a while now … so people are confused, they don’t have big expectations, they’re no longer waiting for a tremendous rate drop. But if that happens, God, it would be incredible for the market.”

The recent decline has already led to an increase in purchase applications. Sam Khater, Freddie Mac’s chief economist, noted that even modest drops in rates have improved purchase demand.

Khater said, “Despite just a modest drop in rates, consumers clearly have responded as purchase demand has noticeably improved. The responsiveness of prospective homebuyers to even small changes in rates illustrates that affordability headwinds persist.”

Corcoran also pointed out the need for more first-time homebuyers in the market, which remain at an all-time low.

Corcoran said, “What we’re losing right now and what we desperately need right now is more first-time homebuyers.”

Corcoran added, “Less than 24% of the people are first-time buyers, an all-time low.”

While buyers have become accustomed to current mortgage rates, they are not significantly optimistic about future decreases. Danielle Hale, Chief Economist at Realtor.com®, stated that any decline in rates would positively affect home shoppers.

Hale said, “Every drop in mortgage rates is going to make a difference for some home shoppers who are on the margin.”

Hale added, “If we were to see a sharp drop in mortgage rates to 5%, that could bring in a lot of buyers and sellers at once—and really jolt the housing market. It’s going to be not only about the rate itself, but how we get there.”

A sharp decline in mortgage rates would likely invigorate the housing market, attracting both buyers and sellers. Conversely, an increase in rates could dampen market activity and negatively impact the broader economy. Hale stated, “It could slow down the whole market, it would slow down the whole economy, it would slow down all the support services for the housing market—it would be a terrible thing.”

Corcoran said, “I don’t think people are thinking it’s going to go much up.”

Corcoran added, “That could happen, but I don’t think you’re going to see interest rates above 7% again. I’m hoping it’s going to go and hover around 6% or even go lower.”