Last week, the average 30-year fixed mortgage rate fell to 6.35 percent. That’s the lowest they’ve been in almost a year.
This is important because the lower rates drop, the more purchasing powering buyers have.
This is good news for people looking to buy a home – but at the same time, prices are still up more than 50 percent today compared to before the pandemic.
All of this means that the housing market is in its third straight year of sluggish sales.
Nicole Friedman covers the housing and home building industry for The Wall Street Journal and she joined the Texas Standard to discuss her reporting on the subject. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: 6.35 percent does seem a good bit better than we had been seeing recently. Where does it have to get for people to get back into the housing market and why are we seeing this affordability crisis continue?
Nicole Friedman: Yes, so 6.35 percent, it’s definitely significantly lower than it was at the start of the year when it was closer to 7 percent. But still, it’s above 6 percent. And for a lot of people, that’s just too high.
You talk to real estate agents and mortgage lenders, and they say people really want, at the very least, a rate that starts with a five. And so we think that seeing rates below 6 percent might be enough to spur some more activity.
And then other people say even lower, 5.5 is the magic number. Cause remember just a few years ago in 2020, 2021, people could get mortgage rates for 3 percent, sometimes even lower. And so that’s not that long ago.
People remember those rates and they remember that their friend or their neighbor or their brother or sister bought a house with a 3 percent rate. And they’re looking at 6.35, it doesn’t sound so good.
You know, you mentioned those low rates, which are still very fresh in the memory of so many people. During the pandemic, I know a lot of folks refinanced their homes at ultra low rates and certainly made their mortgages more manageable, but it also kind of locked them into their homes, it seems – sort of a golden handcuffs issue.
Any sign that there’s resolution to that?
So that’s been a major factor in the housing market in recent years, is just people who own homes with low mortgage rates don’t wanna move because why would you give up that 3 percent rate to trade into something else at a 6.5 or 7 percent rate unless you really, really have to?
And so a lot of people have felt locked in in recent years and that is slowly starting to ease because the truth is that life happens, right? People, they have a baby, they get a new job, they have a divorce or a new marriage, and so people have reasons that they need to move, need to buy or sell for their lives and not everybody can just stay frozen because of the mortgage market.
And so we are seeing, you know, this year there has been somewhat of an unlocking that more sellers are saying, “I just can’t keep waiting.” And that’s made it a little bit easier for buyers, that they have more to choose from; they’re not quite so limited in the inventory. But you still have a lot of people out there that wish they could sell that are still waiting.
And so this is going to be kind of a slow fix to the problem that every month, if mortgage rates get lower, that will unlock a little bit more supply. But it’s very personal for each family what that rate is that will be enough for them.
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Are there any regions in the country where affordability is improved?
So we are seeing prices start to come down in the markets where supply has climbed the most.
So it’s exactly what you would expect, just classic economics. And that’s really in the Southeast and Southwest that we’re seeing that change, especially Florida and Texas. Supply has grown a lot in those states, partly because of new homebuilding and partly because some of these households just couldn’t keep waiting for lower rates, they had to move for whatever reason.
But again, the price has climbed so much since 2020 that even if they come down now, maybe 5 percent, even 10 percent, that’s still up a lot from what you could pay for that house just five or six years ago. And so the affordability calculation is not fixed.
And of course, there are sort of ripple effects of all of this, and I was reading a story just yesterday talking about how those who are in their later years, more senior years, who have savings, they seem to be weathering all of these fairly well, but for those who are 20, 30, in their 40s, who have never been homeowners, they just don’t see a way into this market. That they’re really feeling locked out.
Is that how you see it?
I definitely hear from first-time homebuyers or people who wish they could buy their first homes that just feel like the prices have climbed so much. Mortgage rates have climbed. You know, I didn’t get in five or six years ago and now it’s just too expensive.
I think that it is easier for buyers in some ways because there’s more supply out there and there’s not the bidding wars that we saw a few years ago, and so buyers aren’t having to put in bids over asking. They’re not necessarily having to wave inspections or do these kinds of crazy things that we heard about during the pandemic.
And so for some buyers, they’re actually able to put in an offer under asking or get their closing costs covered, negotiate a little bit of concessions, but that kind of assumes they can qualify for the loan in the first place. And for a lot of people, at this home price, they just can’t even get into that first step.
I mentioned the news from yesterday, that quarter percent drop in interest rates. You think that’s gonna trickle down to mortgage rates? Where’s this headed?
So economists say that the move that the Federal Reserve took yesterday is already priced into the mortgage market, that’s why mortgage rates have come down in recent weeks. And so they don’t expect necessarily a much bigger drop from here.
And mortgage rates, they’re not directly set by the Fed. They’re more dependent on the bond market and longer-term expectations for what happens to the economy, what happens to inflation. And if the Fed is cutting because the Fed is worried about the job market, well, a weaker job market is not good for the housing market. People don’t buy homes if they’re not sure that their jobs are stable.
And so on the one hand, lower mortgage rates are good for housing market, and they could keep coming down here if the Fed keeps cutting. But on the other hand, a weak economy or a weaker job market could also be a challenge for home sales.
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