Originally Published: 21 DEC 23 12:00 ET

Updated: 21 DEC 23 12:17 ET

By Anna Bahney, CNN

Washington, DC (CNN) — US mortgage rates continued to plunge this week – good news for home buyers who have been facing the least affordable housing market since the 1980s.

After dropping under 7% last week for the first time since mid-August, rates fell again this week. The 30-year fixed-rate mortgage rate fell to an average of 6.67% in the week ending December 21, down from 6.95% the previous week, according to data from Freddie Mac released Thursday. A year ago, the average 30-year fixed-rate was 6.27%.

It was the eighth-straight week of declines, dragged lower by the anticipation of Federal Reserve rate cuts beginning next year.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. A current buyer’s rate may be different.

“Lower rates are bringing potential homebuyers who were previously waiting on the sidelines back into the market,” said Sam Khater, Freddie Mac’s chief economist said in a statement.

He said homebuilders are also starting to feel the positive effects.

“A rise in homebuilder confidence, followed by new home construction reaching its highest level since May, signals a response to meet heightened demand as current inventory remains low,” Khater said.

The average rate rose above 7% in mid-August and soared as high as 7.79% at the end of October. Recent weeks of declining rates indicate the highest mortgage rates of this cycle have passed. That’s welcome news for would-be buyers.

Rates expected to continue falling

With the Fed signaling in its most recent meeting that rate cuts may be coming in 2024, mortgage rates are expected to continue falling, said Lisa Sturtevant, chief economist at Bright MLS in a statement.

While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates track the yield on 10-year US Treasuries, which move up or down based on anticipation about the Fed’s actions, the Fed’s policy changes and investors’ reactions to them.

The average on a fixed-rate mortgage rate is forecast to fall to 6.5% by mid-year and will decline further, reaching 6.2% by the end of next year, according to projections from Bright MLS.

Sturtevant said lower rates will improve affordability. At 7.5%, the typical monthly payment on a loan for a $400,000 home is about $3,000. If a buyer had a rate of 6.2%, that monthly payment drops to about $2,700.

However, she said the bigger obstacle to homebuyers, is a lack of inventory, which continues to keep home prices high and rising.

“Young buyers are having to delay homebuying as it takes them longer to save for a downpayment and they often have to make offers on multiple homes before they are successful,” said Sturtevant. “Many first-time homebuyers have been priced out of the market altogether.”

Affordability challenges remain

While affordability will improve with lower rates, there is still a long way to go.

Just 15.5% of homes for sale in 2023 were affordable for the typical U.S. household—the lowest share on record – according to a report released Thursday by Redfin, a real estate brokerage. That’s down from 20.7% in 2022 and down by more than 40% from before the pandemic homebuying boom.

The report found the actual number of affordable homes for sale also dropped to the lowest level on record. The study defined an “affordable” listing as one where the monthly mortgage payment would be no more than 30% of the county’s median income.

There were 352,500 affordable listings in 2023, that was down 40.9% in 2022 and down from over a million per year during the prior decade.

Part of the reason there are fewer affordable homes is because of a drop in listings in general — listings were down 21.2% from a year ago. But it is also because elevated mortgage rates and high home prices made the properties on the market more expensive.

While both buyer and seller activity remain near recent lows, each small win in affordability thaws the market slightly, said Hannah Jones, Realtor.com’s senior economic researcher.

“Though recent data signals a shift towards a more hospitable housing market, the return to balance will be slow,” said Jones in a statement.

Mortgage rates and home prices are well above pre-pandemic levels, and they are projected to remain elevated through next year.

The median listing price for a home in the US was 37.7% higher than pre-pandemic in November, while for-sale inventory was 34.0% lower, according to Realtor.com.

“The housing market remains under-supplied, which will keep upward pressure on prices, especially as buyer demand picks up,” said Jones.

This story has been updated with additional context.

The-CNN-Wire