The housing market is caught in a situation where homeowners are unwilling to sell and property affordability is falling partly resulting from high borrowing costs. But September could see a spring thaw that melts the market.
That’s a magic number for mortgage rates. And given Federal Reserve Chairman Jerome Powell’s dovish tone on Friday, borrowing costs are expected to fall, paving the way in which for lower costs for a house loan. There is a few consensus that after mortgage rates fall to six% or lower, they shall be irresistible to those that have been waiting for the correct time. Earlier this yr, self-made real estate millionaire and The Shark Cat Star Barbara Corcoran said 6% was the “magic number” that might bring back off-balanced buyers. Robert Reffkin, co-founder and CEO of real estate giant Compass, said in June, “I think I would be comfortable at 6.5% … but the magic number is 5.9999.” He continued, “That would be marketing magic, telling the world that mortgage rates are at a level where they should go out and grab a property.”
And then there may be Meredith Whitney, the “Oracle of Wall Street” and CEO of her own research firm, the said If mortgage rates fall below 6% this month, we’ll see a surge in home sales.
We usually are not there yet, but we’re getting closer. Weekly average for the 30-year fixed mortgage rate was 6.46% yesterday. In the press release, Freddie Mac said, “Softer economic data suggests that rates will trend slightly lower through the end of the year. Rates fell sharply earlier this month and are now just below 6.5%, not enough to motivate prospective homebuyers. Rates will likely need to fall another percentage point to spur buyer demand.” (Daily mortgage rates are equal for the time being.)
And it’s true that this hasn’t been enough to make an actual difference because, for one thing, existing home sales are still pretty weak. There was a small rebound in July; Selling existing homes rose 1.3% month-on-month, but were still below year-on-year levels. “Despite the modest gain, home sales are still sluggish,” said Lawrence Yun, chief economist for the National Association of Realtors. “But consumers are definitely seeing more choice and affordability is improving due to lower interest rates.”
Economist Thomas Ryan of Capital Economics called Existing home sales are “disappointing” given the sharp drop in mortgage rates last month, nevertheless it may simply take longer for that to be reflected in sales numbers – so August may tell a special, more magical story. Still, he reiterated his stance that there is not going to be a “quick recovery” within the housing market this yr, no matter lower borrowing costs. For Ryan, mortgage rates would wish to fall below 5% to realize a full recovery, he has said previously.
On the opposite hand, Selling latest homeswhich have generally outperformed existing home sales, rose 10.6% in July. Ryan have booked this to “pent-up buyers taking advantage of last month’s sharp drop in borrowing costs after being sidelined by high mortgage rates earlier this year.” Still, builders have been offering incentives similar to lower mortgage rates, so that might even be a part of the cause. It’s not entirely clear why lower mortgage rates appear to be more necessary within the new-build segment than within the existing-home segment.
Whatever the case, it looks just like the Federal Reserve is able to cut rates of interest. While one cut won’t solve all the issues, partly since it’s already priced in, it could be a step in the correct direction so far as mortgage rates are concerned. Who knows, perhaps we’ll finally hit the magic number sometime next yr.
