Many homebuyers — already stretched thin by high home prices — have been waiting eagerly for mortgage rates to fall.
And it appears that relief might be on the way. In the past six weeks, mortgage rates have dropped at least a full percentage point from the record highs seen in the fall of last year.
“For buyers, there is a lot of uncertainty about whether or not rates have peaked or if rates will go down any more,” said Andre Barrett, team lead with The Barrett Group LLC in Tamarac, Floridad.
Are mortgage rates trending on the downturn and will buyers finally get a breather?
What is happening with mortgage rates?
Numbers from Freddie Mac show that the average rate for a 30-year-fixed mortgage is about 6.09%, and the average rate of a 15-year fixed mortgage is about 5.14%, signaling a downward trend experts believe will continue.
“If you follow the trend, it’s kind of like it hobbled up and down, but in an overall downward trend,” said J.C. de Ona, Centennial Bank Southeast Florida division president. “It’s a positive from an affordability standpoint in your mortgage. It gives you more buying power.”
Where mortgage rates ultimately end up remains to be seen. Some experts believe they will stabilize around 5%. A forecast from the Mortgage Bankers Association predicts that mortgage rates should hit around 5.4% by the third quarter, and 5.2% by the end of the year for an average fixed 30-year mortgage.
Mortgage rates have been trending downward as signs emerge that inflation is starting to get under control.
“Inflation has gotten better every month for the past few months,” said Ryan Paton, president of Capitol Lending Group in Coconut Creek, Florida. “Inflation numbers have gone down and rates have gone down.”
Rates reached record highs of over 7%, cutting into many buyers’ budgets and pushing many of them to the sidelines as the combination of high home prices, and rates made it almost impossible to afford a home.
“The rates more than doubled in six months. In the 42 years I’ve been in the business I’ve never seen that it was so dramatic,” said Mike Pappas of Keyes Company. “It definitely raised tremendous caution in the marketplace.
The news of the rates slowing bodes well for buyers: A homebuyer with a budget of $2,500 monthly payment can afford a $400,000 with current rates, according to a RedFin analysis. It gives them an extra $35,000 to spend on a home compared to when rates were over 7%.
Despite rates being on the downturn, it’s unlikely that the market will again reach the low 3% rates that drew buyers in droves to the real estate market.
“People are getting off the fence now that rates have gotten better,” Paton added. “If inflation keeps dropping, we could be in the fours. "
Are buyers heading back to the market?
Carolina Hernandez, 29, and her husband are getting back into the housing market after taking a break in the search for a home. They started last year, amid low rates, but grew discouraged in a market where they couldn’t compete among over-asking offers, waiving contingencies, and bidding wars.
“We decided to go back even though interest rates are way higher than they were last year. The market is a bit more settled,” Hernandez said.
While they had to readjust their budget to accommodate higher rates, they feel that now might be an advantageous time to buy since buyers have more room to negotiate now.
“It’s been a roller-coaster of a process,” she added. “Rent is getting expensive. You either pay $3,000-$4,000 a month in rent, or you just make the sacrifice and pay off your house at a higher interest rate than it was last year.”
The couple is among a group of buyers slowly making their way back to the market after the shock of seeing rates double. It’s still a delicate balance to make for many buyers, but at the end of the day, many of them need to get into homes.
“Buyers have realized that the three percent rates are not coming back anytime soon. They were so startled last year that they have also had time to process the rate increases and they may have been able to make financial adjustments in the meantime,” said Patty DaSilva, broker with Green Realty Properties in Cooper City, Florida.
DaSilva noted that she has seen a 20% uptick in demand, whether that is more showings or inquiries about buying a home.
She’s not alone in noticing an uptick in demand from buyers. Paton reported that he had an 80% uptick of new purchase applications at his company, while Barret is noticing an increasing in showings.
“Buyers are not liking the mortgage rates right now, but a lot of folks have to purchase a home,” Barrett said, adding that programs, such as mortgage-rate buydowns, are making things a little easier for buyers.
There is likely a segment of buyers still trying to wait out the market to see where rates head in the future.
“There are quite a bit of buyers waiting for lower interest rates, and I think that every little bit that rates go down, more buyers come out,” DaSilva said.
