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Mortgage Rates Down a Full Percent from Recent High

Mortgage rates have been one of the hottest topics in the housing market lately because of their impact on affordability. And if you’re someone who’s looking to make a move, you’ve probably been waiting eagerly for rates to come down for that very reason. Well, if the past few weeks are any indication, you may be getting your wish.

Mortgage Rates Trend Down in Recent Weeks

There’s big news for mortgage rates. After the latest reports on the economy, inflation, the unemployment rate, and the Federal Reserve’s recent comments, mortgage rates started dropping a bit. And according to Freddie Mac, they’re now at a level we haven’t seen since February. To help show the downward trend, check out the graph below:

No Caption ReceivedMaybe you’re seeing this and wondering if you should ride the wave and see how low they’ll go. If that’s the case, here’s some important perspective. Remember, the record-low rates from the pandemic are a thing of the past. If you’re holding out hope to see a 3% mortgage rate again, you’re waiting for something experts agree won’t happen. As Greg McBride, Chief Financial Analyst at Bankrate, says: 

“The hopes for lower interest rates need the reality check that ‘lower’ doesn’t mean we’re going back to 3% mortgage rates. . . the best we may be able to hope for over the next year is 5.5 to 6%.”

And with the decrease in recent weeks, you’ve got a big opportunity in front of you right now. It may be enough for you to want to jump back in. 

The Relationship Between Rates and Demand 

If you wait for mortgage rates to drop further, you might find yourself dealing with more competition as other buyers re-ignite their home searches too.

In the housing market, there’s generally a relationship between mortgage rates and buyer demand. Typically, the higher rates are, the lower buyer demand is. But when rates start to come down, things change. Buyers who were on the fence over higher rates will resume their searches. Here’s what that means for you. As a recent article from Bankrate says:

“If you’re ready to buy, now might be the time to strike. Home prices have been rising primarily because of a longstanding shortage of homes for sale. That’s unlikely to change, and if mortgage rates do fall below 6%, it’s possible buyers would enter the market en masse, further pushing up prices and resurrecting bidding wars.”

Bottom Line

If you’ve been waiting to make your move, the recent downward trend in mortgage rates may be enough to get you off the sidelines. Rates have hit their lowest point in months, and that gives you the opportunity to jump back in before all the other buyers do too.

If you’re ready and able to start the process, reach out to a local real estate professional to get started.

How the Economy Impacts Mortgage Rates

As someone who’s thinking about buying or selling a home, you’re probably paying close attention to mortgage rates – and wondering what’s ahead.

One thing that can affect mortgage rates is the Federal Funds Rate, which influences how much it costs banks to borrow money from each other. While the Federal Reserve (the Fed) doesn’t directly control mortgage rates, they do control the Federal Funds Rate.

The relationship between the two is why people have been watching closely to see when the Fed might lower the Federal Funds Rate. Whenever they do, that’ll put downward pressure on mortgage rates. The Fed meets next week, and three of the most important metrics they’ll look at as they make their decision are:

  1. The Rate of Inflation
  2. How Many Jobs the Economy Is Adding
  3. The Unemployment Rate

Here’s the latest data on all three.

1. The Rate of Inflation

You’ve probably heard a lot about inflation over the past year or two – and you’ve likely felt it whenever you’ve gone to buy just about anything. That’s because high inflation means prices have been going up quickly.

The Fed has stated its goal is to get the rate of inflation back down to 2%. Right now, it’s still higher than that, but moving in the right direction (see graph below):

2. How Many Jobs the Economy Is Adding

The Fed is also watching how many new jobs are created each month. They want to see job growth slow down consistently before taking any action on the Federal Funds Rate. If fewer jobs are created, it means the economy is still strong but cooling a bit – which is their goal. That appears to be exactly what’s happening now. Inman says:

“. . . the Bureau of Labor Statistics reported that employers added fewer jobs in April and May than previously thought and that hiring by private companies was sluggish in June.”

So, while employers are still adding jobs, they’re not adding as many as before. That’s an indicator the economy is slowing down after being overheated for quite some time. This is an encouraging trend for the Fed to see.

3. The Unemployment Rate

The unemployment rate is the percentage of people who want to work but can’t find jobs. So, a low rate means a lot of Americans are employed. That’s a good thing for many people.

But it can also lead to higher inflation because more people working means more spending – which drives up prices. Right now, the unemployment rate is low, but it’s been rising slowly over the past few months (see graph below):

No Caption ReceivedIt may seem harsh, but a consistently rising unemployment rate is something the Fed needs to see before deciding to cut the Federal Funds Rate. That’s because a higher unemployment rate would mean reduced spending, and that would help get inflation back under control.

What Does This Mean Moving Forward?

While mortgage rates are going to continue to be volatile in the days and months ahead, these are signs the economy is headed in the direction the Fed wants to see. But even with that, it’s unlikely they’ll cut the Federal Funds Rate when they meet next week. Jerome Powell, Chair of the Federal Reserve, recently said:

“We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”

Basically, we’re seeing the first signs now, but they need more data and more time to feel confident that this is a consistent trend. Assuming that direction continues, according to the CME FedWatch Tool, experts say there’s a projected 96.1% chance the Fed will lower the Federal Funds Rate at their September meeting.

Remember, the Fed doesn’t directly set mortgage rates. It’s just that whenever they decide to cut the Federal Funds Rate, mortgage rates should respond.

Of course, the timing of when the Fed takes action could change because of new economic reports, world events, and other factors. That’s why it’s usually not a good idea to try to time the market.

Bottom Line

Recent economic data may signal that hope is on the horizon for mortgage rates. Count on a local real estate agent you can trust to keep you up to date on the latest trends and what they mean for you.

How Do Presidential Elections Impact the Housing Market?

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Some Highlights

  • Are you wondering if the upcoming election will have an impact on the housing market? Here’s what history tells us you need to know if you’re considering a move.​
  • Data shows home sales slow in November but quickly bounce back and rise the following year. Prices usually keep climbing. And mortgage rates typically come down slightly.
  • Presidential elections have only a small and temporary impact on the housing market. If you have questions, connect with a real estate agent.

Not a Crash: 3 Graphs That Show How Today’s Inventory Differs from 2008

Even if you didn’t own a home at the time, you probably remember the housing crisis in 2008. That crash impacted the lives of countless people, and many now live with the worry that something like that could happen again. But rest easy, because things are different than they were back then. As Business Insider says:

“Though many Americans believe the housing market is at risk of crashing, the economists who study housing market conditions overwhelmingly do not expect a crash in 2024 or beyond.”

Here’s why experts are so confident. For the market (and home prices) to crash, there would have to be too many houses for sale, but the data doesn’t show that’s happening. Right now, there’s an undersupply, not an oversupply like the last time – and that’s true even with the inventory growth we’ve seen this year. You see, the housing supply comes from three main sources:

  • Homeowners deciding to sell their houses (existing homes)
  • New home construction (newly built homes)
  • Distressed properties (foreclosures or short sales)

And if we look at those three main sources of inventory, you’ll see it’s clear this isn’t like 2008.

Homeowners Deciding To Sell Their Houses

Although the supply of existing (previously owned) homes is up compared to this time last year, it’s still low overall. And while this varies by local market, nationally, the current months’ supply is well below the norm, and even further below what we saw during the crash. The graph below shows this more clearly.

If you look at the latest data (shown in green), compared to 2008 (shown in red), we only have about a third of that available inventory today. No Caption Received

So, what does this mean? There just aren’t enough homes available to make values drop. To have a repeat of 2008, there’d need to be a lot more people selling their houses with very few buyers, and that’s not the case right now.

New Home Construction

People are also talking a lot about what’s going on with newly built houses these days, and that might make you wonder if homebuilders are overdoing it. Even though new homes make up a larger percentage of the total inventory than the norm, there’s no need for alarm. Here’s why.

The graph below uses data from the Census to show the number of new houses built over the last 52 years. The orange on the graph shows the overbuilding that happened in the lead-up to the crash. And, if you look at the red in the graph, you’ll see that builders have been underbuilding pretty consistently since then: No Caption Received

There’s just too much of a gap to make up. Builders aren’t overbuilding today, they’re catching up. A recent article from Bankrate says:

“What’s more, builders remember the Great Recession all too well, and they’ve been cautious about their pace of construction. The result is an ongoing shortage of homes for sale.”

Distressed Properties (Foreclosures and Short Sales)

The last place inventory can come from is distressed properties, including short sales and foreclosures. During the housing crisis, there was a flood of foreclosures due to lending standards that allowed many people to get a home loan they couldn’t truly afford.

Today, lending standards are much tighter, resulting in more qualified buyers and far fewer foreclosures. The graph below uses data from ATTOM to show how things have changed since the housing crash: No Caption Received

This graph makes it clear that as lending standards got tighter and buyers became more qualified, the number of foreclosures started to go down. And in 2020 and 2021, the combination of a moratorium on foreclosures (shown in black) and the forbearance program helped prevent a repeat of the wave of foreclosures we saw when the market crashed.

While you may see headlines that foreclosure volume is ticking up – remember, that’s only compared to recent years when very few foreclosures happened. We’re still below the normal level we’d see in a typical year.

What This Means for You

Inventory levels aren’t anywhere near where they’d need to be for prices to drop significantly and the housing market to crash. As Forbes explains:

“As already-high home prices continue trending upward, you may be concerned that we’re in a bubble ready to pop. However, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.”

Mark Fleming, Chief Economist at First American, points to the laws of supply and demand as a reason why we aren’t headed for a crash:

“There’s just generally not enough supply. There are more people than housing inventory. It’s Econ 101.”

And Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), says:

“We will not have a repeat of the 2008–2012 housing market crash. There are no risky subprime mortgages that could implode, nor the combination of a massive oversupply and overproduction of homes.”

Bottom Line

The market doesn’t have enough available homes for a repeat of the 2008 housing crisis – and there’s nothing that suggests that will change anytime soon. That’s why housing experts and inventory data tell us there isn’t a crash on the horizon.

Stay informed