Mortgage rates slipped to enticing lows this week following a modest quarter-point rate hike from the Federal Reserve — potentially heralding a period of calm for would-be homebuyers.

“With the Fed switching to smaller rate hikes, mortgage rates will likely be less impacted by the Fed’s rate increases in the following months,” says Nadia Evangelou, senior economist for the National Association of Realtors (NAR).

“There is finally a light at the end of the tunnel for many Americans as they now earn more than the income needed to purchase a mid-priced home. With rates falling below 6.1%, many Americans earn annually about $5,000 more than the qualifying income.”

However, Evangelou adds affordability is still a concern for first-time homebuyers, who are missing “about $30,000 in order to qualify for a starter home.”

Don't miss

• Americans are paying nearly 40% more on home insurance compared to 12 years ago — here's how to spend less on peace of mind

• You could be the landlord of Walmart, Whole Foods and CVS (and collect fat grocery store-anchored income on a quarterly basis)

• UBS says 61% of millionaire collectors allocate up to 30% of their overall portfolio to this exclusive asset class

30-year fixed-rate mortgages

The average 30-year fixed rate dipped to 6.09% this week, compared to last week’s average of 6.13%. A year ago at this time, the rate averaged 3.55%.

America’s most popular home loan is down nearly a full point from its November peak, says Sam Khater, Freddie Mac’s chief economist.

“This one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify and afford a $400,000 loan, which is the median home price,” says Khater.

15-year fixed-rate mortgages

The average rate on a 15-year home loan also dropped from 5.17% to 5.14% this week. This time a year ago, the 15-year fixed-rate averaged 2.77%.

“With inflation pressures easing, mortgage originators have followed suit, lowering the cost of borrowing. At the same time, the Federal Reserve’s monetary tightening is pushing short-term borrowing costs higher,” writes George Ratiu, manager of economic research at Realtor.com.

“With the Fed’s policy rate underpinning the prime rate, a host of credit products are seeing higher rates, including credit cards, auto loans and adjustable-rate mortgages. In effect, the Fed’s actions are keeping a floor under mortgage rates for the short term.”

Read more: Rich young Americans have lost confidence in the stock market — and are betting on these assets instead. Get in now for strong long-term tailwinds

Surprise job surge another factor to watch

The year 2023 started with an unexpected boom in the labor market — and as NAR’s chief economist explains, home sales and job growth are related over the long term.

“That is why the South and the Rocky Mountain regions are seeing more robust home sales gains over the long haul due to faster job growth compared to the rest of the country,” says Lawrence Yun.

The labor market remains resilient despite all the recent tech layoffs, according to the recent U.S. jobs report. The unemployment rate is down to 3.4%, with 517,000 jobs added in January.

Over the short term, however, Yun believes robust job data could raise the need for more aggressive monetary tightening, temporarily hiking mortgage rates once more.

“Still, rents are expected to calm down due to active apartment construction. That will help lower the broader consumer price inflation and halt Fed rate increases by summer. Mortgage rates can then go below 6%.”

Mortgage applications decline despite lower rates

Demand for mortgages sank 9% from last week, according to the Mortgage Bankers Association (MBA).

Refinance activity also dropped by 7% — and is 80% lower than the same week a year ago.

“Overall application activity declined last week despite lower rates, which is an indication of the still volatile time of the year for housing activity,” says Joel Kan, vice president and deputy chief economist at the MBA.

“Purchase activity is expected to pick up as the spring homebuying season gets underway, bolstered by lower rates and moderating home-price growth. Both trends will help some buyers regain purchasing power.”

What to read next

• Put your idle cash to work: Here's how you can earn from real estate — without the hassle of playing landlord

• The #1 new homeowner rule is to shop around for your mortgage — how to get the lowest quote

• 'Hold onto your money': Jeff Bezos says you might want to rethink buying a 'new automobile, refrigerator, or whatever' — here are 3 better recession-proof buys

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.