Skip to main content

Positive news for homebuyers as long-term mortgage rates hit lowest point since May



The average long-term U.S. mortgage rate fell the second week of January to its lowest level since May, providing a favorable outlook for potential homebuyers amid rising home prices and stiff competition for limited available properties. In Idaho, the housing market could heat up with falling mortgage rates.

According to mortgage buyer Freddie Mac, the average rate on a 30- year mortgage has fallen from 6.66% to 6.6%, marking a significant drop compared to the 6.15% rate observed a year ago. This decline, following two weeks of increases, brings the average rate to its lowest point since late May at 6.57%.

Freddie Mac’s Chief Economist, Sam Khater, views this as positive news for the housing market, especially for firsttime homebuyers sensitive to changes in housing affordability.

“This is an encouraging development for the housing market and in particular first-time homebuyers who are sensitive to changes in housing affordability,” said Khater. “However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale.”

In Idaho, where home prices rank among the highest, there’s a chance the housing market could heat up with a big drop in mortgage rates.

“Lower interest rates and lower mortgage rates are going to heat up the housing market here again — I think that goes for any local housing market that was really hot before the pandemic,” said Anne Walker, Ph.D, department of economics lecturer at Boise State University.

Walker stated that despite the potential impact, it might not feel as shocking at this point, given that housing in Idaho was likely underpriced before the pandemic compared to other cities. She believes that the current lower interest rates will stimulate mortgages and housing activity in the state.

“ There’s a potential for the Idaho housing market to overheat with a dramatic drop in mortgage rates,” she said. “Given that inflation, according to the latest data, might be falling a little bit more slowly than people are expecting, that will slow the pace of interest rate decreases and soften that potential rush to the housing market and overheating of the housing market.”

According to Freddie Mac, while economists anticipate further easing of rates, potentially benefiting the spring homebuying season starting in late February, predictions suggest that the average rate on a 30-year mortgage is unlikely to drop below 6% at this point. Despite uncertainties surrounding the number and timing of rate cuts by the Federal Reserve, the overall outlook remains positive for homebuyers.

Home loan borrowing costs have been mostly coming down since late October, after the average rate on a 30-year mortgage surged to 7.79%, the highest level since late 2000.

The average rate remains sharply higher than just two years ago, when it was 3.56%. That large gap between rates now and then has helped limit the number of previously occupied homes on the market nationally by discouraging homeowners who locked in rock-bottom rates from selling.

Still, the broad decline in rates since last fall is good news for homebuyers, as it boosts their purchasing power at a time when home prices have kept climbing rising despite a deep housing market slump. Sales of previously occupied U.S. homes sank more than 19% through the first 11 months of last year.

The decline in mortgage rates has followed a pullback in the 10-year Treasury yield, which lenders use as a guide to pricing loans. The yield, which in mid-October surged to its highest level since 2007, has come down on hopes that inflation has cooled enough for the Federal Reserve to shift to cutting interest rates this year.

The central bank has indicated it will likely cut rates several times in 2024 because inflation has been cooling since its peak two summers ago. Uncertainty remains, however, on how many cuts the Fed may deliver this year and how soon it would begin.

If rates continue to ease, as many economists expect, that should help boost demand heading into the spring homebuying season, which traditionally begins in late February.

Still, at this point, economists generally predict the average rate on a 30-year mortgage going no lower than 6%.

Idaho Business Review Reporter Chloe Baul contributed to this report. Review

Back to top