American homebuyers have a message for those responsible in determining mortgage rates: lower those rates or we won’t purchase property.
Or at least that was the sentiment in a survey conducted last month by John Burns Research and Consulting, where 71% of potential homebuyers stated they would not consider taking out a 30-year fixed-rate mortgage that is over 5.5%. The same survey found 62% of buyers insisting that the “historically normal mortgage rate” was below 5.5%, hence their use of that specific percentage as the real estate equivalent of a line in the sand.
This creates an interesting dilemma, considering that Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.27% as of April 13 – the 52-week range for this mortgage rate spanned a low of 4.99% to a high of 7.08%, and Freddie Mac noted the historic average when measured back to 1971 was 7.75%.
Lest we forget, this coming Friday will mark the first anniversary of the 30-year fixed-rate mortgage breaking through the 5% mark – it averaged 5.11% as of April 21, 2022. Also during that week one year ago, Zillow reported the cost of a 30-year mortgage on the typical U.S. home was 19.5% higher compared to three months earlier.
“Higher mortgage rates were anticipated this year, but the speed of their rise has been breathtaking,” said Jeff Tucker, Zillow senior economist, back in April 2022, adding there would eventually be “a point when the cost of buying a home deters enough buyers to bring price growth back down to Earth, but for now, there is plenty of fuel in the tank as home shopping season kicks into gear.”
The threat by homebuyers to sit on the sidelines until mortgage rates continue to decline is not an act of idle petulance – the National Association of Realtors reported that year-over-year existing home sales were down by 22.6% and pending transactions were down 21.1% over the same period. Some people might claim there are other factors at play here, most notably the lack of housing inventory and home prices that are still too expensive for too many people. But a tight inventory and accelerating prices did not stop buyers when mortgage rates were at historic lows.
Earlier today, a Realtor.com survey of homeowners planning to sell their residences and buy new property affirmed the John Burns study – Realtor.com found more than half of seller-buyers (56%) who are planning to sell in the next 12 months said would wait waiting for rates to come down before putting their homes on the market while embarking in a new house hunt.
There have been examples of entities who have taken a proactive effort to force the mortgage rate down to where most buyers want it. The John Burns report cited efforts by some home builders “who choose to subsidize buyers’ mortgage rates, bringing the overall rate down below 5.5%, have been achieving the most success. Many of the largest builders in the country have been buying mortgage rates down below 5.0%.”
But that is the exception, not the rule. Do not expect an acceleration of sales and a new wave of property listings as long as rates remain stuck above 5.5%. The American buyers have spoken –whether they’ve spoken in a rational manner is open to debate, but nonetheless they have spoken.
Phil Hall is editor of WRE News. He can be reached at firstname.lastname@example.org.
Super Article. I’m definitely going to share it on My Real Estate Forum.
p.s. Our website is under construction. We apologize for the inconvenience.
I appreciate that you used the 5.5 rate because I just posted an article last week in my newsletter that showed it was the historical 100 year point! It feels like I just had an echo of confirm. Thank you for reiterating what was in my bones.
With prices already rebounding from their overall modest declines, by the time these waiters get around to buying below 5.5%, the prices will have risen by 2, 3, or 5% or more and their ability to buy may be even further eroded than it was from a 6 or 6.5% mortgage rate. And if they were to buy now, they can refi in 2 years when the rates have fallen to well below 5% and end up saving more, and making more, in the long run.