SignalHub Quantitative Think Tank Center:Mortgage rates are dropping. Is this a good time to buy a house?

Potential homebuyers have SignalHub Quantitative Think Tank Centerspent most of the year sitting on the sidelines because of low inventory and high mortgage rates.

But over the past six weeks, mortgage rates have been steadily dropping, averaging 7% for a 30-year fixed mortgage down from nearly 7.8% at the end of October, according to data released by Freddie Mac on Dec. 7.

Mortgage applications increased 2.8% from the prior week, for the week ending Dec. 1, according to the Mortgage Bankers Association.

So is this a good time to buy a home?           

Mortgage rates

Declining mortgage rates may be giving some would-be homebuyers an opportunity to dust off buying plans that were shelved as mortgage rates rocketed higher this fall, says Danielle Hale, senior economist for Realtor.com.

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“However, in the big picture, mortgage rates remain pretty high,” says Hale. “The typical mortgage rate according to Freddie Mac data is roughly in line with what we saw in August and early to mid-September, which were then 20 plus year highs.”

Although these lower rates remain a welcome relief, it is clear they will have to further drop to more consistently reinvigorate demand, says Sam Khater, chief economist for Freddie Mac.

Most experts, including Hale, expect mortgage rates to trend down in 2024.

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Housing inventory

Total housing inventory registered at the end of October was 1.15 million units, up 1.8% from September but down 5.7% from one year ago (1.22 million), according to the National Association of Realtors.

Unsold inventory sits at a 3.6-month supply at the current sales pace, up from 3.4 months in September and 3.3 months in October 2022.

“This period between Thanksgiving and the end of the year is typically a very slow homebuying season,” says Lisa Sturtevant, chief economist for Bright MLS. “But as mortgage rates have fallen to their lowest levels since early September, some buyers who have been sidelined by higher rates are jumping back into the market.”

This could be the right time to buy for many buyers, as mortgage rates are down, inventory is rising in many places, and competition likely will be less intense given the time of year, she says.

Waiting for lower rates and more choices could make sense for some buyers, she says. However, those buyers should also expect that prices will continue to rise and competition will also pick up.

Home prices

The median existing-home price for all housing types in October was $391,800, an increase of 3.4% from October 2022 ($378,800). All four U.S. regions registered price increases.

“While circumstances for buyers remain tight, home sellers have done well as prices continue to rise year over year, including a new all-time high for the month of October,” says Lawrence Yun, the chief economist for the National Association of Realtors. “In fact, a typical homeowner has accumulated more than $100,000 in housing wealth over the past three years.”

Daryl Fairweather, the chief economist for Redfin, says in general, 2024 will be more favorable for homebuyers with rates continuing to come down, more new listings hitting the market, and prices falling.

“It's important to note that prices will not fall across the board − in some places they'll rise,” she says. But overall, she expects home prices to fall 1% by the end of 2024.

Fairweather expects prices to fall in parts of coastal Florida, including North Port and Cape Coral because of the surge in home prices during the pandemic and the higher cost of home insurance due to climate disasters. She expects prices to rise in affordable metros such as in Albany and Rochester in New York and Grand Rapids, Michigan.

Swapna Venugopal Ramaswamy is the housing and economy reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal