Borrowers appear to be coming to terms with the current outlook
A hoped-for plunge in mortgage rates has failed to materialize in 2024 to date – but that could convince buyers that the “new normal” is here to stay and now is the time to step off the sidelines, according to a leading executive.
Melissa Cohn (pictured), regional vice president at William Raveis Mortgage, told Mortgage Professional America that while rates show little sign of dipping dramatically, that trend didn’t appear to have deterred borrowers from ramping up homebuying activity in recent times.
Existing-home sales and pending home sales were both up in February compared with the prior month, according to the National Association of Realtors (NAR), even as interest rates continued to hover above 6%.
Freddie Mac reported that the average rate for a 30-year fixed loan was 6.82% last week (April 4), a slight jump compared with the previous week.
“I think that over the course of the past couple of months, we’ve seen so many people come to terms with the fact that we’re not going back into a 3% rate environment, and that if they wish to move or buy a new home, they have to accept the fact that rates in the 6.5%, plus or minus, range are rates that have become the new normal,” Cohn said.
“People have had to adjust their expectations of where rates are and what payments are going to be, and have decided that they’re just going to move forward with the hope and expectation that the Fed at some point – hopefully by the end of the year – will start to cut rates and mortgage rates will decline over the next couple of years.”
Freddie Mac's Sam Khater anticipates no major rate drops in the near future.https://t.co/m9LNpDnzzk#mortgageindustry #homebuyers #interetsrates #mortgagerates
— Mortgage Professional America Magazine (@MPAMagazineUS) April 8, 2024
What’s the outlook for home prices?
Plenty of sellers are, needless to say, holding fire on listing their home at present in the knowledge that they’ll likely need to pay a much higher rate if they leave their current mortgage.
However, Cohn said they could also be compelled to push ahead with a listing as uncertainty continues over the likely direction of home prices in the months ahead.
“Obviously [sellers] hope that if rates come down, then perhaps the values of their homes will go up and maybe they’ll get a better price,” she said. “But there are also more and more articles about how real estate market prices may not go up even if rates come down, and there’s some amount of doom and gloom in the press about the future of the real estate market. Perhaps now’s a good time to get out for a seller.”
Still, odds are that prices will continue to jump in the coming years – and Cohn said buyers appear to be realizing that now is the time to “keep marching” and that waiting two to three years for the interest rate environment to change would be an unwise move.
She gave the example of paying $6,000 a month more on a mortgage for a year than if rates were slightly lower. “Will that property go up in value by more than that $6,000 if rates drop by 1% or 2%? Probably, yeah. This is the year of adjustment, resetting, creating a new normal and new expectations.”
Greater market stability to be welcomed
With recent years marked by waves of uncertainty and unpredictability in the US’s economic and real estate outlooks, she added that a degree of unanimity around a so-called “new normal” would be welcome in bringing a semblance of stability to the market.
“If you think about the past four years, starting at the beginning of 2020 when the pandemic, we’ve all been through a lot of things,” she said. “It’s nice to get back into a more normalized, stable environment.”
As for the question of when mortgage rates could fall? They’ll likely tick down as soon as the Federal Open Market Committee cuts its benchmark interest rate, a move that’s expected to happen at some point in the final quarters of 2024 – although Freddie Mac chief economist Sam Khater has noted that’s by no means a foregone conclusion.
“Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary, leading to higher mortgage rates,” Khater said in February.
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