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Editor’s Note: The video above is previous coverage on the housing market.

(WJW/AP) — The average long-term U.S. mortgage rate inched down this week to its lowest level in six weeks, just as the spring buying season gets underway.

Mortgage buyer Freddie Mac reported Thursday that the average on the benchmark 30-year rate fell for the third straight week, to 6.32%, from 6.42% last week. The average rate a year ago was 4.67%.

What does this mean for prospective homebuyers?

The recent decline in mortgage rates is good news for prospective homebuyers, as many were pushed to the sidelines during the past year while the Federal Reserve cranked up its main borrowing rate nine straight times in a bid to bring down stubborn, four-decade high inflation.

Also helping buyers, home prices appear to be leveling off. The national median home price slipped 0.2% from February last year to $363,000, marking the first annual decline in 13 years, according to the National Association of Realtors.

One thing that hasn’t gotten much better is the supply of homes.

“Over the last several weeks, declining rates have brought borrowers back to the market but, as the spring homebuying season gets underway, low inventory remains a key challenge for prospective buyers,” said Sam Khater, Freddie Mac’s chief economist.

The average long-term mortgage rate hit 7.08% in the fall — a two-decade high.

Rising borrowing costs can add hundreds of dollars a month in costs for homebuyers and put the brakes on the housing market. Before surging 14.5% in February, sales of existing homes had fallen for 12 straight months to the slowest pace in more than a dozen years.

In 2022, existing U.S. home sales fell 17.8% from 2021, the weakest year for home sales since 2014 and the biggest annual decline since the housing crisis began in 2008, the National Association of Realtors reported earlier this year.

In their latest quarterly economic projections, Fed policymakers forecast that they expect to raise that key rate just once more — from its new level of about 4.9% to 5.1%, the same peak they had projected in December.

While the Fed’s rate hikes do impact borrowing rates across the board for businesses and families, rates on 30-year mortgages usually track the moves in the 10-year Treasury yield, which lenders use as a guide to pricing loans. Investor expectations for future inflation, global demand for U.S. Treasurys and what the Federal Reserve does with interest rates can also influence the cost of borrowing for a home.

Treasury yields have fluctuated wildly since the collapse of two mid-size U.S. banks two weeks ago. The yield on the 10-year Treasury, which helps set rates for mortgages and other important loans, was 3.57% Thursday, but had been above 4% early in March.

The rate for a 15-year mortgage, popular with those refinancing their homes, fell this week to 5.56% from 5.68% last week. It was 3.83% one year ago.

Should you wait until the market cools down to buy or sell?

Mortgage lender Khash Saghafi, at Liberty Home Mortgage in Independence, said the interest rate increase on March 22 will not have a serious effect on home prices in six months or even one year from now since rates have been fairly steady for the last six months and the effect of increasing rates has already been felt.

“The #1 factor affecting home prices right now is the lack of inventory,” Saghafi said. “That lack of inventory will be the reason why home values remain strong and even increase.”

He explained that because home prices have increased so dramatically over the last few years, selling is not a bad thing to do. But it must be the right move for someone’s family.

The best time to sell is when a homeowner has the need in their personal life to sell,” he said.
“Buying, and selling, is truly very personal and situational. It all depends on the individual situation that the person or family is in.”

With high-interest rates, there’s a silver lining for home buyers in this seller’s market.

Lenders are competing for buyers by trying to offer more loan options to the buyers to help them with their affordability when it comes to the price of the home, including low down payment programs, interest rate buydown programs and adjustable rate mortgage programs, he explained.

Click here for Saghafi’s explanation of home loan options.

What is impacting home prices in Northeast Ohio?

Amy McDougald Eckard, realtor with Keller Williams Chervenic, said that while interest rates are impacting the market, they have not had a big impact on prices yet.

“There are fewer buyers but inventory levels remain so low that buyers still outnumber sellers,” Eckard said. “So buyers are still paying top dollar for well-marketed homes.” 

She said there are a few reasons that inventory is so low:

  • Sellers are reluctant to give up their low-interest mortgages for a new home and higher rate
  • Sellers are having a hard time finding a new or used home to move to
  • New construction levels have been way below demand so sellers who may have considered new construction are experiencing sticker shock

These issues are likely to continue for the near future so waiting for prices to go down or interest rates to go down may be a long wait, she said.

“We have a phrase that we use in real estate that says ‘marry the home and date the rate,'” she said. “In other words, if you find a good house and you get a good price for it, keep in mind that you can refinance somewhere down the road if interest rates do pull back. Also, a lot of lenders are offering creative ways of getting the interest rates down especially if you’re going to be in a property for a long period of time.”

Things for sellers and buyers to consider

Eckard said that first time buyers should look for a house with good bones, but needs some updating.

“Often these homes get passed up and sit on the market for a while,” she said. “A lot of young buyers watch too much HGTV and are looking for that perfect move in ready home. New flooring, removing wallpaper and painting as well as small updates to kitchens and baths can make all the difference in the world.”

She said that unfortunately there were plenty of people a couple of years ago that waited to buy, but now wish they had gotten in the market.

She doesn’t see home prices going down in the near future, six months or even a year from now, so it’s a great time to sell.

“My sellers are still able to get top dollar as well as asking buyers to work with their time frame,” she said, “so that they have time to find a home or finish a new build.”