The housing market has been in a deep freeze, with homeowners reluctant to sell and affordability waning due to high borrowing costs.
But, just maybe, a spring thaw is on the horizon, thanks to a magic number in mortgage rates.
Mortgage rates have been flirting with a crucial threshold, and Federal Reserve Chair Jerome Powell’s recent dovish remarks hint that we’re inching closer.
If rates drop to 6% or lower, it could be the catalyst the market’s been waiting for.
Earlier this year, real estate mogul and Shark Tank star Barbara Corcoran suggested 6% as the “magic number” to lure back buyers sitting on the sidelines.
Compass CEO Robert Reffkin echoed this sentiment, saying that 6.5% would be promising, but “the magic number is 5.9999%,” a figure he believes could trigger a rush in the market.
Wall Street’s oracle, Meredith Whitney, sees it similarly. She predicts that dipping below 6% could spark a surge in home sales.
We’re not quite there yet, but with the 30-year fixed mortgage rate averaging 6.46% this week, we’re getting closer.
Freddie Mac’s latest release suggests that rates might gently ease downward as softer economic data rolls in.
Despite rates hovering just under 6.5%, it hasn’t been enough to jolt the market into action.
Existing home sales are still sluggish, though they saw a modest 1.3% uptick in July. However, sales are still down from last year’s levels.
Lawrence Yun, chief economist at the National Association of Realtors, noted, “Consumers are seeing more choices, and affordability is improving due to lower interest rates.”
But not everyone’s optimistic.
Thomas Ryan, an economist at Capital Economics, described the recent uptick in existing home sales as “underwhelming,” given the significant drop in mortgage rates.
He believes it’ll take more time for sales data to reflect any real change, potentially making August a turning point.
However, Ryan maintains that a full housing market recovery won’t happen until mortgage rates dip below 5%.
On the flip side, new home sales have outpaced existing ones, jumping 10.6% in July.
Ryan attributes this to “pent-up buyers” taking advantage of the recent dip in borrowing costs, along with homebuilders sweetening the deal with incentives like mortgage rate buydowns.
The Federal Reserve seems poised to start cutting interest rates, and while one cut won’t work miracles—especially since it’s already priced in—it could nudge mortgage rates closer to that magical number.
Who knows, maybe next year, the housing market will finally find its groove and offer more opportunities for the business community.
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