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Mortgage rates fell to their lowest levels in over a year this week, spurred by rising market expectations of interest rate cuts by the Federal Reserve, bringing some much-needed relief to U.S. homebuyers.
As of Aug. 7, the average 30-year fixed mortgage rate dropped by 26 basis points from the previous week, settling at 6.47%. This is the lowest rate since late May 2023, according to Freddie Mac data released on Thursday.
Similarly, the average 15-year fixed mortgage rate fell by 36 basis points from the previous week to 5.63%, the lowest level since April 2023.
“The decline in mortgage rates does increase prospective homebuyers' purchasing power and should begin to pique their interest in making a move,” Freddie Mac highlighted.
Additionally, this decrease in rates is already benefiting existing homeowners. The refinancing share of mortgage applications has climbed to nearly 42%, the highest since March 2022.
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“Bad news is (likely) good news for home price appreciation,” wrote Goldman Sachs analyst Vinay Viswanathan in a note Thursday, highlighting the investment bank’s optimistic outlook for the housing market.
Goldman Sachs has upwardly revised its forecasts for home price appreciation (HPA) in 2024 and 2025. The bank now expects full-year 2024 HPA to reach 4.5% and 2025 HPA to come in at 4.4%. These projections are notably higher than their previous forecasts of 4.2% and 3.2%, respectively.
The bullish outlook is underpinned by Goldman Sachs economists’ prediction that the Federal Reserve will implement three rate cuts this year, each by 25 basis points.
These anticipated cuts are expected to bring the 30-year conforming mortgage rate down to 6.5% by the end of 2024 and 6.1% by the end of 2025. These figures are slightly lower than the bank’s previous forecasts of 6.6% and 6.3%, respectively.
The positive sentiment surrounding the recovery of the property market extended to mortgage-linked stocks.
The iShares Residential and Multisector Real Estate ETF (NYSE:REZ), which tracks stocks exposed to the residential property market, rose 0.6% on Thursday.
Other sector funds, such as the VanEck Mortgage REIT Income ETF (NYSE:MORT) and the iShares Mortgage Real Estate ETF (NYSE:REM), saw gains of 0.9% and 0.8%, respectively.
Individual stocks in the mortgage business showed robust performance, with Rocket Companies Inc. (NYSE:RKT) and UWM Holdings Corp. (NYSE:UWMC) up by 3.3% and 4.5%, respectively.
Shares of companies involved in home construction also experienced a boost. The SPDR Homebuilders ETF (NYSE:XHB) climbed 1.6%.
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