Despite exorbitant home prices, expert believes now is the time to buy

Mortgage rates have dropped under 7% for the first time in four months, offering a sliver of hope for the beleaguered housing market.

On a downward trend for seven consecutive weeks, rates have fallen from a high of 7.79% in October, with the average for a 30-year fixed-rate loan falling to 6.95% from 7.03% last week, Freddie Mac said Thursday.

The "sharp and surprising decline in mortgage rates could help lift [the housing market] out of its multifaceted chill or deep freeze, given the low level of home sales," Mark Hamrick, senior economic analyst at Bankrate said in an email. The lower rates "could compel some owners to put their properties on the market, helping to bolster painfully low inventories," he added.

"Given inflation continues to decelerate and the Federal Reserve Board's current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year," Sam Khater, Freddie Mac's chief economist stated. 

The Federal Reserve on Wednesday held its benchmark rate steady and projected a series of cuts in 2023, sending 10-year Treasury yields falling and helping to bring mortgage rates down from that peak sooner than expected, noted Thomas Ryan, property economist at Capital Economics. 

While the scenario appears to set the stage for a recovery in housing market activity in 2024, borrowing costs are unlikely to return to the lows seen in the 2010s, and "the recovery in demand and sales will be sluggish," Ryan said in a report.

Falling mortgage rates and rising income will lead to a recovery in demand for housing, with the outlook for homebuyers improving in the new year, according to the National Association of Realtors.

The trade organization on Wednesday predicted a 13.5% increase in existing home sales in 2024. The NAR also projects median home prices nationally will hold steady again next year, "modestly improving affordability from rising income."

Kate Gibson

Kate Gibson is a reporter for CBS MoneyWatch in New York.