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Mortgage rates fall again, edge closer to 6%

Mortgage rates slid for the fourth straight week, nearing 6%.

The rate on the 30-year fixed mortgage inched down to 6.09% from 6.13% the week prior, according to Freddie Mac. Rates have declined nearly a full point since mid-November, allowing as many as 3 million more buyers to qualify for a median-priced home.

The recent dip in rates has been encouraging for price-struck buyers that have regained some of the purchasing power they lost in the last year. Still, affordability and economic concerns continue to hold back overall demand.

“Rates have improved, but they are nowhere near where they were two years ago,” Jason Sharon, owner of Home Loans Inc., told Yahoo Finance. “Unless we see another global catastrophe, we are not likely to see rates in the 3’s again. I believe rates will continue their gradual decline for the remainder of the year, but that doesn’t mean people should wait to purchase a home.”

‘Affordability remains a primary challenge’

The drop in rates hasn't been enough to fully restore homebuyer activity.

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After back-to-back weekly increases, the volume of purchase applications for a mortgage dropped 10% on a seasonally adjusted basis compared with the previous week, the Mortgage Bankers Association’s survey for the week ending Jan. 27 found. Overall, purchase activity is down 41% from the same week a year ago.

One reason for the lull could be the lack of affordable for-sale homes for first-time buyers. Just 42% of new and existing homes for sale are considered affordable to a typical household, January data from the National Association of Realtors found, a post-Great Recession low.

Inventory woes are also likely to persist this year as many homeowners remain reluctant to give up their ultra-low mortgage rate they secured during the first two years of the pandemic.

“More than 86% of all mortgaged homes today have a rate of less than 6%. The challenge for the first-time homebuyer from an affordability standpoint may not even be an affordability problem in the long run,” Mark Fleming, chief economist at First American, told Yahoo Finance. “It won’t just be that they can’t afford a home, it’ll be that they can’t find it.”

A potential buyer walks in to view a home for sale during an open house in Parkland, Florida. (Credit: Carline Jean/South Florida Sun Sentinel/Tribune News Service via Getty Images)
A potential buyer walks in to view a home for sale during an open house in Parkland, Florida. (Credit: Carline Jean/South Florida Sun Sentinel/Tribune News Service via Getty Images) (Sun Sentinel via Getty Images)

With rates double where they were a year ago, homebuyers today are also facing a monthly mortgage payment that is roughly $700 higher per month for a typical home loan, the NAHB said.

While the median listing price in January was unchanged from December at $400,000, that’s still 8.1% higher than a year ago, Realtor.com found.

“For today’s buyer of a median-priced home, the down payment amount is lower than it would have been last summer,” George Ratiu, manager of economic research at Realtor.com, said in a statement. “While that is positive news, affordability remains a primary challenge, especially for first-time buyers.”

Price cuts continue

Prospective home buyer  Lars Kalnajs looks over a home that has been reduced in price in Denver, Colorado.  (Credit: Chris Hondros, Getty Images)
Prospective home buyer Lars Kalnajs looks over a home that has been reduced in price in Denver, Colorado. (Credit: Chris Hondros, Getty Images) (Chris Hondros via Getty Images)

Home sellers kicked off the year by dangling more price reductions and incentives to woo buyers who left the market at the end of 2022. Those inducements are still happening.

The share of homes with price reductions increased to 15.3% in January from just 6% a year earlier, Realtor.com found. Builders are in on the game, too. Though builder confidence in January improved for the first time in a year, they are still offering rate buy-downs, price reductions, and cash toward closing costs.

For instance, one of Monte Miner’s clients got $15,000 off a new home listed at $409,000 in January.

“You can find additional incentives and motivations from builders,” the real estate agent at Ironwood Fine Properties in Phoenix said. “Especially in this current market.”

Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.

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