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Raise your hand if you’re tired of waiting for interest rates to fall. Right now, it feels like housing is one big waiting game. At first, rate cuts – plural – were supposed to be quickly approaching. Now, the idea of lower rates feels like a promise that stays just out of reach.
The good news is that cuts are still predicted. However, when the Federal Reserve makes the first decrease is anyone’s guess. (As we all know, the mortgage rate and the one from the Federal Reserve are not the same, but they are certainly related.) Here are three different ways continued lower mortgage rates will affect buyers, sellers and current homeowners.
A small shift means big things for buyer affordability. While a mortgage rate shouldn’t be the only factor in timing for buying a house, it’s a major one when it comes to affordability. It’s up to us as real estate professionals to convey that even the smallest decline can save buyers thousands over the life of their loans. After all, that’s why interest rates have been such a big deal since last year.
Need proof? Consider an excerpt from this recent article on the topic. “A homebuyer hoping to secure a $400,000, 30-year fixed-rate mortgage might have gotten a rate of about 6.82% in early April. That works out to a monthly mortgage payment of around $2,613. Two weeks later, rates were hovering at 7.10%. That slightly higher rate adds $75 to the monthly mortgage payment or $27,000 over the life of the loan. Even a one percentage point difference may not sound like much, but it can mean almost $200 more on a monthly mortgage payment.”
Sellers will be more motivated to list as rates come down. One of the main reasons for the lack of inventory in recent years was the so-called “rate-lock” phenomenon. This refers to the idea that people who would normally be ready to sell are waiting to move to a new home because they are deterred by the prospect of a new mortgage with higher payments at a higher rate than their current home. However, as rates come down, more people will be ready to list, especially if home prices stay so strong. Housing inventory, in general, is on the uptick so far this spring, but expect those numbers to really jump once mortgage rates are officially on the decline.
Recent homebuyers want to refinance. One of the most common phrases house hunters heard during the last two years was, “Date the rate. Marry the house.” Well, once interest rates do come down, some homeowners will be looking around for a better rate that fits their long-term plans. Just how many interested people are out there? According to a September 2023 survey from U.S. News & World Report, 84% of people who bought in that last year planned to refinance, with a majority of people hoping to do so once rates fell below 6%.
The bottom line is that anyone involved in real estate should be on the lookout for the best time for their previous clients to refinance. Keeping tabs on this important information is a great time to reconnect and stay top of mind. Of course, if you need a notary partner to help facilitate your next transaction – refi or otherwise – BBS Notary is your nationwide solution. Reach out to us anytime. Ask about how we can help with your Remote Online Notarization (RON) transactions, too!
