{"id":168890,"date":"2024-03-01T15:34:19","date_gmt":"2024-03-01T22:34:19","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=168890"},"modified":"2024-04-04T04:47:06","modified_gmt":"2024-04-04T10:47:06","slug":"what-interest-rate-will-unfreeze-housing","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/what-interest-rate-will-unfreeze-housing","title":{"rendered":"There Is an Interest Rate That Will Unfreeze the Market\u2014But Will We Ever Get There?"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC3666154920\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">Last week,&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.realtor.com\/research\/america-dream-survey-feb-2024\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Realtor.com published another version of its \u2018\u2018magic number\u2019\u2019 forecast<\/span><\/a><span data-preserver-spaces=\"true\">. The number in question is the mortgage rate number low enough to \u2018\u2018unfreeze\u2019\u2019 the real estate market.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">We know that the market has been in something of a gridlock for over a year now:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/where-home-prices-grew-the-most-in-2023\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Home prices<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;are very high and keep rising.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Mortgage rates are high and aren\u2019t showing much of a downward trend.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">There aren\u2019t enough homes to go around, especially those that are remotely&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/on-the-market-145\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">affordable<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Something has to give.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The consensus is that this something is&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/with-mortgage-rates-set-to-drop-will-home-sellers-return-to-the-market\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">mortgage rates<\/span><\/a><span data-preserver-spaces=\"true\">\u2014they\u2019ll have to come down substantially for the housing market to get back to anything resembling normality.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What\u2019s the Magic Number?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, Realtor.com asks, what is the mortgage rate threshold that needs to be crossed for buyers to start buying again? Well, the answer depends on who you ask and when.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Of the 5,000 U.S. consumers surveyed, 22% would consider a home purchase if rates went below 6%. And for 18% of respondents, a rate of below 7% would be good enough.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Long-suffering millennials and Gen Z buyers are even more resigned to high rates\u201447% of respondents in the millennial bracket and 37% in the Gen Z bracket would still take the plunge even if rates topped 8%. Basically, buyers in these categories will buy no matter what\u2014<\/span><em><span data-preserver-spaces=\"true\">if<\/span><\/em><span data-preserver-spaces=\"true\">&nbsp;they just manage to save up enough and can find a home to buy.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Asking the Right Questions<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, there is an elephant in the room with this \u2018\u2018magic number\u2019\u2019 forecasting: It\u2019s not asking the right question. And because it\u2019s not asking the right question, it\u2019s not precise enough in its choice of respondents.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">First-time buyers, daunted and discouraged as they may be by the new reality of high home prices and high rates, will not give up on their perception of homeownership as a dream worth striving toward. But first-time buyers also hold no power in the current real estate market dynamic. The people who do are existing homeowners who aren\u2019t selling. It\u2019s these people who are worth asking for the \u2018\u2018magic number\u2019\u2019 that may give them enough confidence to move and finally release inventory.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">As it turns out, there is a different survey that talks to the right people.&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/jbrec.com\/insights\/5-5-is-the-magic-mortgage-rate\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">John Burns Research and Consulting<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;surveyed existing homeowners last year and found that \u2018\u201871% of prospective homebuyers who plan to purchase their next home with a mortgage say they are not willing to accept a mortgage rate above 5.5%.\u2019\u2019<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Note that the question isn\u2019t about what existing homeowners could afford (all respondents had household incomes of above $50,000) but about what they are willing to accept. And the majority of them, 62%, believe that \u2018\u2018a historically normal mortgage rate is below 5.5%.\u2019\u2019<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This perception is factually inaccurate. According to Freddie Mac records going back to 1971, the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/themortgagereports.com\/61853\/30-year-mortgage-rates-chart\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">long-term average mortgage rate<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;is just under 8%. So, first-time millennial buyers actually have more realistic expectations than existing homeowners.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That, of course, is because 80% of existing homeowners currently have mortgages with a below 5% rate, and a third are on rates below 3%, according to&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.zillow.com\/research\/rate-lock-selling-32907\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Zillow<\/span><\/a><span data-preserver-spaces=\"true\">. It\u2019s more than understandable that many of them have no desire to sell and lock themselves into the current rates (which were at a 7.9% 30-year average as of this writing).<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Will the Market Unfreeze Itself Anytime Soon?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The reality is that we are a long way off from the \u2018\u2018magic number\u2019\u2019 of 5.5% that would theoretically release all the inventory that sellers are holding on to. Of course, some people will sell anyway, for one pressing life reason or another.&nbsp;<\/span><\/p>\n\n\n\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/haas.berkeley.edu\/wp-content\/uploads\/2023_MortgageLockIn_FonsecaLiu-Lu-Liu.pdf\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Recent research<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;by the Haas School of Business shows that while a 1% increase in mortgage rates reduces moving rates by 9%, once \u2018\u2018the benefit of refinancing exceeds its cost, moving probabilities become unrelated to\u2019\u2019 mortgage rates.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">All that said, the incentive to move has to be pretty high, e.g., a large salary increase. And even then, low mortgage rates often trump wage increases: People tend to stay put if their current fixed rate is low enough.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, what could truly unfreeze the housing market? One solution could be more portable mortgage products, where a mortgage can be transferred to a new property with the existing rate. Another solution could involve making typical fixed mortgage terms shorter like they are in many other countries. Otherwise, we may see a deeper, longer-term freeze: a 25% decline in existing homeowners moving by 2033, according to the Haas study.<\/span><\/p>\n\n\n\n<div class=\"wp-block-group has-slate-200-background-color has-background\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h2 class=\"wp-block-heading has-text-align-center has-theme-slate-dark-color has-text-color\">Make Easier and Smarter Financing Decisions<\/h2>\n\n\n\n<div class=\"wp-block-media-text has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 34%\"><div class=\"wp-block-media-text__content\">\n<p>Deciding how to finance a property is one of the biggest pain points for real estate investors like you. The wrong decision may ruin your deal.<\/p>\n\n\n\n<p>Download our&nbsp;<strong>What Mortgage is Best for Me&nbsp;<\/strong>worksheet to learn how different mortgage rates impact your deal and discover which loan products make the most sense for your unique position.<\/p>\n\n\n\n<div x-data=\"frictionlessSignupForm()\" class=\"button-account-type alignleft\">\n\n  \n\n  <!-- Guest Button -->\n      <template x-if=\"!$store.wp.isMember()\">              <button x-on:click=\"$store.wp.displaySignupPrompt()\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Sign Up to Download<\/button>\n          <\/template>  \n  <!-- Free Member Button -->\n      <template x-if=\"$store.wp.isMember() &#038;&#038; !$store.wp.isPaidMember()\">              <a href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/03\/MARCH-2024-Mortgages-worksheet.pdf\" target=\"_blank\" x-on:click=\"window.analytics.track(&#039;Blog | Market Intelligence | What Mortgage is Best for Me?&#039;, {\n            referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/what-interest-rate-will-unfreeze-housing&#039;,\n            account_type: &#039;free&#039;,\n          });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Download the Worksheet<\/a>\n          <\/template>  \n  <!-- Pro Member Button -->\n      <template x-if=\"$store.wp.isPaidMember()\">      <a href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/03\/MARCH-2024-Mortgages-worksheet.pdf\" target=\"_blank\" x-on:click=\"window.analytics.track(&#039;Blog | Market Intelligence | What Mortgage is Best for Me?&#039;, {\n          referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/what-interest-rate-will-unfreeze-housing&#039;,\n          account_type: &#039;pro&#039;,\n        });\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Download the Worksheet<\/a>\n    <\/template>  \n  <!-- Frictionless Popup -->\n  <\/div>\n<\/div><figure class=\"wp-block-media-text__media\"><img loading=\"lazy\" decoding=\"async\" width=\"1000\" height=\"1000\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/MI-March24_Blog-Thumbnail_v2.png\" alt=\"what mortgage is best for me\" class=\"wp-image-168724 size-full\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/MI-March24_Blog-Thumbnail_v2.png 1000w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/MI-March24_Blog-Thumbnail_v2-300x300.png 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/MI-March24_Blog-Thumbnail_v2-150x150.png 150w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/MI-March24_Blog-Thumbnail_v2-768x768.png 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/MI-March24_Blog-Thumbnail_v2-200x200.png 200w\" sizes=\"auto, (max-width: 1000px) 100vw, 1000px\" \/><\/figure><\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The beginning of 2024 has been a buzzkill for what many believed would be the beginning of federal interest rate cuts. Are we still on track for a summer cut, though?<\/p>\n","protected":false},"author":613618,"featured_media":145694,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8,7119],"tags":[],"class_list":["post-168890","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/168890","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613618"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=168890"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/168890\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/145694"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=168890"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=168890"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=168890"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}