Mortgage Rates Fall Again: Is a ‘Balanced Housing Market’ Finally on the Horizon?

With just about six more weeks to go in 2023, the tough housing market might finish the year with a surprise.

Mortgage rates fell for the third week in a row, dipping to 7.44% for a 30-year fixed-rate mortgage as of Nov. 16, according to Freddie Mac. While this decline is not far from last week’s 7.5%, it’s a marked reversal of what seemed like an inevitable climb toward 8% just a few weeks earlier.

This downward trend in mortgage rates is one sign that 2024 might be a happy year for home shoppers.

“The combination of continued economic strength, lower inflation, and lower mortgage rates should likely bring more potential homebuyers into the market,” says Sam Khater, Freddie Mac’s chief economist.

Yet two other variables still hang in the balance that will help determine the ultimate outcome: the number of homes for sale and how high they’re priced.

“Recently falling mortgage rates may breathe life into buyer activity, which may mean more pressure on home prices as growing demand burdens low inventory levels,” says Realtor.com® economic research analyst Hannah Jones in her analysis. “However, should homeowners respond to falling mortgage rates by entering the market, we could see a more balanced housing market in the coming months.”

Which way will the housing market swing? We’ll break down what all of the latest real estate data means for buyers and sellers in this installment of “How’s the Housing Market This Week?”

Home prices continue to grow

While mortgage rates headed south, median home prices went north for the week ending Nov. 11, rising by 0.7% over last year. (The median list price in October was $425,000.)

Home prices have been firmly stuck in neutral lately, remaining flat or growing slightly on a year-over-year basis since mid-July.

Home shoppers might wonder what’s behind high home prices that don’t seem to budge. Yet the question to ask is not what but who? The answer: homeowners who are refusing to sell.

“The mortgage rate lock-in effect freezes homeowners with low-rate existing mortgages in place,” explains Jones. “Homeowners are likely to continue to choose to stay on the sidelines, limiting available inventory and propping up prices.”

New listings spike

Before homebuyers call the whole home search off due to affordability constraints, they should take note of this positive metric: New listings were up for the week ending Nov. 11, by a whopping 6.4% from one year earlier.

For more than a year now, new listings have been lower than the levels seen the prior year. Yet for the past three weeks, new listings data has done an about-face on that seemingly entrenched trend.

“This week’s spike falls in line with a jump two weeks ago, suggesting that buyer activity is starting to spin up,” says Jones. “With the number of homes for sale already limited, a pickup in new listings is a welcomed change to recent inventory woes.”

The overall inventory picture

Homebuyers enjoying the rush of fresh listings should also take heart in the larger inventory picture, which is brighter as well.

The total number of homes for sale—both new listings and old—rose by 0.6% for the week ending Nov. 11 compared with the previous year.

The rise, however slight, marks a big milestone, breaking a 20-week streak that saw the total number of homes for sale below that of the previous year.

However, the welcome rise in listings should be taken with a large grain of historical context salt.

“The usual seasonal buildup in inventory that makes this time of year favorable for buyers is under way. But from a longer-term macroeconomic perspective, housing remains undersupplied,” says Jones. “The number of for-sale homes registered 41.8% below typical pre-pandemic levels in October.”

The market pace picks up

Motivated homebuyers seem to be wasting no time in closing the deal when they can, with listings spending two fewer days on the market for the week ending Nov. 11 compared with last year. (Homes spent an average of 50 days on the market in October.)

The reason homes are selling faster is simple: Limited inventory doesn’t just drive up prices, it also compels buyers to move quickly when they see a property that fits the bill. And the pace of sales might accelerate further if mortgage rates keep falling through 2023.

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