Mortgage rates dropped this week to their lowest level in eight months in a welcome occurrence for potential homebuyers who have watched rates climb for the past few weeks.
Freddie Mac's latest Primary Mortgage Market Survey released Thursday showed that the average rate for the benchmark 30-year fixed mortgage decreased to 6.60% this week, a decline from 6.62% last week but still up from 6.33% a year ago.
The rate on the 15-year fixed mortgage edged lower for a third straight reading, averaging 5.76% after coming in last week at 5.87%. One year ago, the rate on the 15-year fixed note averaged 5.28%.
Sam Khater, Freddie Mac's chief economist, said these are the lowest rates since May of last year.
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"This is an encouraging development for the housing market and in particular first-time homebuyers who are sensitive to changes in housing affordability," Khater said in a statement. "However, as purchase demand continues to thaw, it will put more pressure on already depleted inventory for sale."
A dearth of existing homes for sale is keeping prices elevated, but a sharp decline in mortgage rates since the fall has spurred an uptick in demand, particularly for new homes. However, the Commerce Department reported Thursday there was a substantial drop in single-family home construction in December, a surprise following four months of increases in housing starts.
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At the same time, building permits – a leading indicator of future construction – rose last month, signaling builders expect the housing market to improve this year, according to LPL Financial chief economist Jeffrey Roach.
"Falling mortgage rates should jump-start the demand for housing in the coming months," Roach said. "Despite the month-over-month decline in December starts, construction activity remains close to pre-pandemic levels."
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"The low supply of existing homes on the market is nudging potential buyers to new construction," he added. "Investors should expect opportunities within the homebuilder sector throughout this year."
FOX Business' Megan Henney contributed to this report.
