Home Sales Are Surging Thanks to Rock-Bottom Mortgage Rates

Realtors are reporting that "For Sale" signs are being replaced by "Sold" signs at a faster clip — and a big reason is mortgage rates that are at their lowest levels in months and aren't too far from their all-time lows.

Sales of previously owned homes jumped 3.6% in December, making it the best month for existing home sales in nearly two years, the National Association of Realtors reports.

The trade group's chief economist, Lawrence Yun, says the surge in sales was helped by factors including "mortgage rates below 4%."

But some would-be homebuyers are having trouble taking advantage of the historically low borrowing costs. Yun is hopeful their plight will improve in 2020.

A big bounce for home sales

Sales of existing homes fluctuated their way through 2019 but ended the year with a bang, as sales throughout the U.S. last month were up 10.8% compared to December of 2018.

The Realtors trade group says the Northeast, South and West all reported "meaningful growth" in home sales, but sales declined in the Midwest.

The housing market got some mojo from mortgage rates, which plummeted during the second half of last year and in September hit a three-year low of 3.49% for a 30-year fixed-rate mortgage. And, rates during December were the lowest for that month since 2012.

Mortgage rates could look even better over the next two years. Rates on 30-year fixed-rate mortgages averaged 3.9% over the course of last year, but they're expected to fall to an average 3.7% in both 2020 and 2021, according to a new survey from mortgage company Fannie Mae.

High home prices, low supplies are challenges

The jump in home sales comes despite price increases, especially in large metropolitan areas. The median sale price for an existing homes increased last month to $274,500, up 7.8% from a year earlier.

Prices are going up because demand for houses is outpacing the supply of homes on the market.

"Home sellers are positioned well, but prospective buyers aren’t as fortunate. Low inventory remains a problem, with first-time buyers affected the most," says Yun, in a news release.

His group says there's just a three months' supply of single-family homes available for sale, the lowest level since the Realtors began tracking that data in 1982.

But Yun is hopeful home prices will calm down and that this year will be a good one for the housing market.

"We saw the year come to a close with the economy churning out 2.3 million jobs, mortgage rates below 4% and housing starts ramp up to 1.6 million on an annual basis,” he said. “If these factors are sustained in 2020, we will see a notable pickup in home sales in 2020."

Mortgage rates move toward all-time lows

Mortgage rates have tumbled this week to an average 3.60% for a 30-year fixed-rate mortgage — down from 3.65% a week ago, says mortgage giant Freddie Mac.

The 30-year average is the lowest since early October and is moving closer to the record-low of 3.12% reached in November 2012, says Freddie Mac chief economist Sam Khater.

One year ago, 30-year fixed mortgage rates were nearly a full percentage point higher, at an average 4.45%.

Rates remain the lowest for January in seven years, MoneyWise.com has found, by reviewing Freddie Mac's historical data.

Analysts say mortgage rates are falling because investors keep finding things to worry about, and they're buying up Treasury bonds as a safe-haven investment. The latest concern has been the spread of the deadly coronavirus.

When Treasuries are in demand, their prices go higher and their yields, or interest rates, move lower. Mortgage rates typically follow the path of the 10-year Treasury note.

Low rates mean robust borrowing

Rates on 15-year fixed-rate mortgages have slid to an average 3.04%, from 3.09% last week. Those loans are a popular choice for refinancing.

A year ago, 15-year mortgages were averaging 3.88%, Freddie Mac says.

And, rates on 5/1 adjustable-rate mortgages have tumbled this week. Those loans — known as ARMs — are fixed for five years and then can adjust up or down every year after that.

ARMs are currently being offered at an average initial rate of 3.28%, down from last week's 3.39%. Last year at this time, the starter rates on ARMs were averaging 3.90%.

Thanks to attractive mortgages rates, mortgage applications remain at an "elevated" level, says the Mortgage Bankers Association. Though activity was down a little bit last week, applications for mortgages to buy homes are running 8% higher than a year ago, and refinance applications are at more than double the level seen in January 2019.