This year has started with a higher level of optimism about the property market and there are indicators that the end of a particularly difficult period for buyers is near. But it’s still too early to call it a buyer’s market.
Many homebuyers are still waiting for mortgage rates to drop to levels they feel are tolerable before making a move. What will it take to get them out of the pen? According to a new survey of potential homebuyers, 5% is the “magic mortgage rate” that will push them to purchase.
Homebuyers waiting for lower mortgage rates
New survey data from Realtor.com shows that 1 in 5 potential buyers are waiting for mortgage rates to fall below 6% to be able to afford to purchase a home. If rates fell even lower – below 5% – nearly a third of potential buyers would say they could afford to buy.
Since 2022, when the Federal Reserve began its campaign of interest rate hikes to tame inflation, mortgage rates have risen with little respite. Two years later, rates are almost 6.77%.
Unfortunately, would-be homebuyers may be left waiting longer than they would like for mortgage rates to fall below 6% again. Many Americans expected mortgage rates to fall in early 2024, because that’s when the Fed was expected to announce its first interest rate cut.
But now, with the economy doing so well, the Fed has balked at the idea of cutting interest rates so soon. Some experts now predict that the first rate cut won’t happen until at least the end of 2024. If that were the case, mortgage rates wouldn’t see a significant drop until then either.
Despite high mortgage rates and prices, many of those surveyed say they will continue to pursue purchasing a home in 2024, especially young people. Nearly half of millennials and about 4 in 10 Gen Z homebuyers say they will continue their journey to homeownership even if mortgage rates climb higher than 8%.
These two groups of young people are among the most confident they will be able to afford a home in the next five years. “There are definitely more challenges [for younger buyers]; they tend to have lower incomes and savings,” said Danielle Hale, chief economist at Realtor.com. At the same time, however, Hale adds that “with incomes now outpacing inflation, we’re seeing a real increase in their power of purchase.”
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