Mortgage rates were at 6.71 percent as of January 24, more than one percentage point below recent highs, according to the ICE US Conforming 30-year Fixed Mortgage Rate Lock Index, produced by the International Exchange.
This downward trend is a positive sign for the housing market heading into 2024, said ICE Vice President of Enterprise Research Strategy Andy Walden.
“Prospective homebuyers may feel an all-too-familiar sense of dread upon hearing that prices – already at record highs – rose another 5.6% in 2023 according to our ICE Home Price Index,” Walden said. “As always, the truth of the situation is more nuanced than one simple, backward-looking metric might suggest, and the data holds some encouraging signals for these folks. In recent months, we’ve seen improvement in rates, affordability, and for sale inventory, with monthly home price growth moderating on a seasonally adjusted basis. While we are still out of sync with historical norms on multiple fronts, each of those metrics have at least been moving in the right direction.”
The report said that the recent rebound in affordability has increased purchase mortgage demand, comparable to levels seen last summer when interest rates were in a similar range. Purchase demand continues to trend very consistently with 30-year-rate changes and their downstream impact on affordability. Further, the refinance market has also seen some modest improvement.
“While the mortgage market remains overwhelmingly purchase-centric, refinance incentive is rising, albeit slowly, alongside easing interest rates,” Walden added. “Since interest rates peaked back in October, we’ve seen a threefold increase in the number of mortgage holders who could reduce their first lien rate by at least 75 bps with a rate/term refi. And while that population stands at roughly 1.7 million – up from 520K last fall – it is still a historically small number. Should rates fall to 6% by year’s end as current forecasts suggest, the number of borrowers with refinance incentive would rise, particularly among 2023 vintage originations.”
The data also shows that aggregate American mortgage holder equity ended 2023 at $16T – up 11 percent to reach the highest year-end total on record. The average mortgage holder now has $299K in equity, up from $274K at the end of 2022.
Such historically high equity levels create the conditions for an uptick in equity lending when interest rates ease enough to make withdrawals more attractive to homeowners. About two thirds of all equity is held by borrowers with credit scores of 760 or higher, which provides lenders with a lower-risk cohort to whom they can offer equity-based products.