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Falling Mortgage Rates Lift Home Sales

Builders are reporting unusually strong sales in December and January. This comes in as mortgage rates fall. The he resale market is expected to follow.

Mortgage rates have plunged -100 basis points from early November to the year’s end, and with that, mortgage rates have been hovering in the mid-6% range for weeks, as shown in Optimal Blue’s weekly purchase mortgage loan lock data.

According to John Burns Research & Consulting, The mortgage rate drop brought some early holiday cheer to housing in December and January, typically some of the slowest months for new home sales. Builders reported 3.3 sales per community in January, +10% higher than the prior year and +38% higher than the long-term average for January.

We’ve reported on the popularity of mortgage rate buydown programs, which can often save buyers hundreds of dollars on monthly payments. With mortgage rates in the mid-6% range, builders can more easily buy down rates to 5.5% or below. We have shown that this is the magic mortgage rate for getting potential buyers off the fence.

As Optimal Blue’s weekly data shows, the share of loans locked in at rates under 5.5% in San Antonio, TX, rose to a staggering 46% by early February, a significant increase from the 29% we reported in early December. San Antonio is a large market for builders, and their rate-buydown programs have produced the bulk of the loans locked in at under 5.5%. We expect the new home market to keep outperforming the resale market in sales volume while mortgage rates stay below 7%, even as mortgage rates remain elevated relative to recent history.

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