[ad_1]
U.S. mortgage rates are falling, but that alone won’t be enough to prompt homeowners to sell their homes and bring the housing market out of its funk. Experts say rates will have to fall even further to spark interest in selling.
Just how low would mortgage rates need to go? The “magic” number varies, but it’s likely to be 6% and below, according to analyses by housing experts.
The 30-year mortgage rate dropped below 7% for the first time since August, according to Freddie Mac, averaging 6.95% as of Dec. 14.
“This can help potential buyers who have been sitting on the sidelines breathe a sigh of relief,” Bill Banfield, executive vice president of capital markets at Rocket Mortgage, told MarketWatch.
Recent research suggests that the 30-year fixed-rate mortgage falling to 5.5% is the “magic mortgage rate” that would be enough to push more home buyers to purchase homes, according to John Burns Real Estate Consulting in April.
The company surveyed over 1,300 homeowners and renters, and found that 71% of prospective buyers who plan to buy their next home with a mortgage said they are not willing to accept a rate of over 5.5%. In fact, 62% said that they believe a “historically normal mortgage rate” is less than 5.5%.
Lock-in effect at play as most homeowners have a rate below 5%
About 80% of homeowners with a mortgage have a rate less than 5%, and a third reported a rate less than 3%, according to Zillow in July.
Homeowners who have a mortgage with a rate of over 5% are nearly twice as likely to have plans to sell their home in the next three years, as compared to homeowners with lower rates, the company found.
Rates are critical to increasing the number of homes for sale on the market. Many homeowners holding out on selling may be doing so in fear of having to give up a low rate for one in the 7% range, since many may need to buy another property with a mortgage.
The total number of homes for sale in the U.S. listed on Redfin, for instance, is down 5% as compared to last year, the brokerage said on Thursday.
On the other hand, there is a glimmer of hope in the data, with new listings rising 8% as compared to last year, which is the biggest increase since July 2021.
Falling rates may be enough to prompt homeowners to sell
Lisa Sturtevant, chief economist at Bright MLS, told MarketWatch that if the 30-year fell to 6.5% in 2024, “that will spark more activity, bringing both buyers and sellers into the market.”
But the simple fact that mortgage rates are falling may be enough to kick start housing activity, she added. Homeowners, who also are potential home buyers, may see a drop in rates as an opportunity to sell and move fast, before competition heats up.
“It is less about the absolute level of the rates, and more that consumers are seeing them fall and they want to be able to jump on those lower rates after waiting on the sidelines this fall and winter,” Sturtevant explained.
If the 30-year mortgage rate falls to a “magic” 6%, that will spark housing activity, Lawrence Yun, chief economist at the National Association of Realtors, told MarketWatch.
But like Sturtevant, Yun also emphasized the effect of falling rates on home shoppers.
“Even moving towards 6% will draw out more sellers as life-changing events of the past two years have delayed [them from] moving,” Yun said, such as couples having kids, or divorcing, or people changing jobs that require them to be based elsewhere.
Rocket’s Banfield also agreed. “While it is impossible to time the market, people will always need to buy homes – whether they are upsizing to meet the needs of their growing family or they are relocating for a new job,” he said. He also noted that lenders including his company are offering mortgages that require buyers to put very little down to purchase a home.
How soon will the housing market see a pick-up in activity?
Mortgage bankers suggested that a steady decline in rates would be enough to entice some homeowners to sell by spring 2024.
With the Fed on Wednesday signaling a policy pivot to cutting interest rates in 2024, “we expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market,” Mike Fratantoni, chief economist and senior vice president at the Mortgage Bankers Association, said in a statement.
The industry group expects the 30-year mortgage rate to fall to 6.1% in the last quarter of 2024, and to 5.5% in the fourth quarter of 2025.
They are hence “forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations, following an extraordinarily slow 2023.”
[ad_2]
Source link
