Mortgage rates are falling steadily after months of varied increases and short reprieves.

But rates remain drastically higher than a year earlier, and buyers, especially those looking to buy their first home, could face lingering challenges.  

The benchmark 30-year fixed mortgage rate cooled for the fourth straight week in the first week of March, sliding to 6.32 percent according to Freddie Mac.  

“Unfortunately, those in the market to buy are facing a number of challenges, not the least of which is the low inventory of homes for sale, especially for aspiring first-time homebuyers,” the agency said. 

Separate data from the Mortgage Bankers Association (MBA) also shows that despite falling rates, demand for new mortgages is weakening, especially on the entry level side of the market. 

“At the entry-level segment of the market, purchase applications for both FHA and VA loans decreased last week,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in a press release. 

A new housing development is shown in Middlesex Township, Pa., on Oct 12, 2022. On Thursday, Freddie Mac reports on this week’s average U.S. mortgage rates. (AP Photo/Gene J. Puskar, File)

“We do expect strong demand from first-time homebuyers over the next several years given the large number of millennials hitting peak first-time homebuyer age, but affordability remains a real challenge in this environment.” 

Credit is harder to get and squeezing buyers

“Tightening credit conditions, alongside higher mortgage rates and low housing stock, could also negatively impact buyers, especially those looking to purchase their first home,” Yelena Maleyev, an economist at KPMG, previously told The Hill.  

“Tighter conditions, higher than 6 percent mortgage rates and still-high prices in many parts of the country are continuing to create a difficult environment for buyers, especially first-time buyers. Inventory in the under-$300,000 range remains tight and that is an area where we have seen a continuation of bidding wars,” Maleyev said. 

Consumer confidence in the housing market held near its all-time low in March with most in a recent survey saying it is not a good time to buy a home.  

Fannie Mae’s Home Purchase Sentiment Index (HPSI) rose modestly month-over-month in March while remaining close to its lowest point reached late last year.

In the survey, 79 percent said it is a bad time to buy amid persistently high prices and mortgage rates.  

The HPSI reached a historic low in October with a reading of 56.7 while the reading from March shows a monthly increase to 61.3.  

“Homeowners sharing this belief frequently cited ‘unfavorable mortgage rates’ as the primary reason for their pessimism, further corroborating the often-discussed disincentive – or ‘lock-in effect’ – that many mortgage holders who may be considering moving have toward giving up their lower rate,” Mark Palim, Fannie Mae vice president and deputy chief economist, said in a news release.  

“With affordability constraints, the lock-in effect, and home price direction uncertainty weighing heavily on consumers’ minds, we maintain our forecast that total home sales for the year will remain subdued,” Palim concluded.