Mortgage lenders had to struggle against interest rates’ upward march this year. iStock illustration

The increase in conforming loan limits for 2024 set by the Federal Housing Finance Agency, will make it easier for homebuyers to take on the higher mortgage loans needed to buy a home in a highly priced market like Massachusetts.

Christopher Butts, vice president and loan officer at Arlington-based Leader Bank, said the limits reflected the rise in house prices in Massachusetts, but its impact will only be felt in more moderately priced communities.

“It’s not going to help in Belmont,” he said.

Given the high home prices in some towns, mortgages there “are going to be jumbo loans no matter what,” Butts said.

Challenging Residential Lending in 2023

Affordability remained a challenge for homebuyers throughout the year as interest rates climbed throughout the year. According to mortgage-buyer Freddie Mac, the average interest rate on a 30-year, fixed-rate home mortgage started 2023 at 6.48 percent and peaked at 7.79 percent for the seven days ending Oct. 26.

Due to these high rates, Butts said sellers who might have otherwise traded up or down to a new house didn’t; homeowners weren’t interested in refinancing their mortgages when they had rates as low as 3 percent; and some buyers took a wait-and-see approach hoping for new inventory to come online and for interest rates to come down.

Loan officer Patti Lotane of Hyannis-based Cape Cod Five said the number of mortgage loans that the bank originated so far this year has been cut in half compared to last year. Some of the loan officers that joined the industry around two to four years ago, when interest rates were at their lowest and mortgage demand was at its highest, have also already left the industry, she said.

According to data from The Warren Group, publisher of Banker & Tradesman, 133,364 residential mortgages worth $68.41 billion were issued in Massachusetts in the first 10 months of 2022, compared to 78,494 worth $38.12 billion in the first 10 months of 2023, the most recent data available as of publication time.

But the homebuying environment got better in the second half of 2023, said Shant Banosian, senior loan officer at Guaranteed Rate.

“In the second half of the year, it became a little bit easier to buy a house,” Banosian said. “Because in the last few years, the demand was so far ahead of the inventory that we were seeing multiple offers [on a single property] and it was almost a craze that homes are being sold for way above asking price. There was 10, 20 or 30 offers on homes.”

“We saw that slow down the second half of the year and it became a lot easier for a homebuyer to win,” he added.

Popular Mortgage Products This Year

Butts said that a lot of homebuyers this year opted for adjustable-rate mortgages, which offer a lower rate up front and a higher rate after a handful of years, anticipating a drop in interest rates in the coming years that would let them refinance.

A lot of Realtors and homebuyers were also interested in interest rate buydowns, Butts said. In a buydown, a homebuyer can lower their interest rates for up to three years by buying down the interest rate with upfront cash upon closing costs. This may give buyers temporary relief in the first three years of mortgage payments, bringing down interest payments by one to three percentage points.

“It was a way to kind of say to the buyers, Hey, the rate is 8.25 percent, but we can work out a buydown where you get a 3 percent reduction for the first year and then you get a 2 percent [the second year], then you get 1 percent [the final year of the buydown],” the Leader Bank loan officer said. “I’d say there was more talk about it than people actually doing it. It was viewed as an option.”

He said a buydown can make sense if a borrower is expecting to have more income coming in the next few years.

2024 and Beyond

The average interest rate on a 30-year, fixed-rate loan had fallen to 7.03 percent last week from a series of 20-year highs this fall according to Freddie Mac.

Nika Cataldo

Lotane, Butts and Banosian all said they are hoping for lower rates and more inventory in the coming year.

Butts and Lotane both said that borrowers appear to be getting accustomed to the high interest rate environment, which gives them hope buyers will have appetite to buy houses moving into 2024.

If interest rates remained steady at 6.5 percent next year, then it can be already “a fine year” for residential lending, Butts said, adding that he hopes that rates could go as low as 5 percent next year.

But he said that competition among loan officers will remain high next year due to the lack of deals, which will ultimately benefit the borrowers and customers.

Correction, 12:10 p.m. Dec. 11, 2023: Due to an editing error, the current Freddie Mac average interest rate on a 30-year, fixed, rate residential mortgage is 7.03 percent. The average interest rate on a 15-year, fixed-rate residential loan is 6.29 percent.