By ERIN FLYNN JAY
It is being speculated that once interest rates drop, a number of buyers will jump into the housing market, causing another surge in prices. We spoke to some industry leaders to get their take.
Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors, said this is true.
“Buyers who were priced out of the housing market with rates at nearly 7% will be able to purchase. Due to limited housing inventory, the housing market may see a rebound in multiple offers, which will put upward demand on housing prices,” said Lautz.
She said a significant portion of homes are already selling at above the asking price.
“Currently, there are more than three offers for every home listed, and one-third of homes are moving at more than the asking price even at a time when mortgage rates are in the high 6% range,” Lautz said.
ATTOM CEO Rob Barber said lower interest rates mean lower mortgage payments, which makes buying more attractive.
“It could mean the difference between affording and not affording a home purchase for buyers at the margins of affordability, or the savings that other house hunters feel they need before they make one of the biggest purchases of their lives,” said Barber.
Barber said price surges are already being felt. The nationwide median home price shot up 10% to a new record of $350,000 from the first to the second quarter of this year during a time when average 30-year, fixed-rate interest rates for home mortgages were one-half to three-quarters of a point below peaks of around 7% late last year, he said.
For sure, other factors were at play in the second quarter. Those probably included falling inflation, rising employment, and an improving stock market, noted Barber. But declining interest rates provided yet another incentive for buyers who have been waiting on the sidelines.
At the moment, interest rates are still volatile. Officials at Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 6.78%, down from 6.96% the week prior. A year ago at this time, the 30-year FRM averaged 5.54%.
“So, it’s anyone’s guess right now how things shake out. The rest of this year’s peak buying season should provide more clarity about that,” said Barber.
Rick Sharga, founder and CEO of CJ Patrick Company, said if rates drop significantly, that could motivate potential sellers to put their homes on the market.
Sharga said if rates dropped to 5.5% there would likely be new listings from homeowners with sub-6% mortgage rates.
“That increased supply could help meet the increased demand, and keep home prices from escalating too quickly,” Sharga said.
People are still choosing to leave high-cost and high-tax states such as California and New York to live in less expensive markets in the Midwest, South, and Mountain States, so that could affect supply and demand in different parts of the country.
“A decline in mortgage rates could potentially accelerate this migration as it would give more prospective buyers the opportunity to afford a home elsewhere. This, in turn, could lead to home prices in those states rising more quickly than in states where the population is stagnant or declining,” Sharga said.
Marc Cashin, a real estate broker with McEnearney Associates in Washington, DC, said a slight increase in listings may not be enough to satisfy pent-up demand.
Lack of inventory is the number one complaint Cashin hears from agents across the country.
“The major cause is the fact that over 80% of homeowners have a mortgage rate under 5%. Their mentality is they’re basically locked in their current home until rates drop,” said Cashin. “Nobody is happy about giving up their 3.5% mortgage and trading it for one at 7%.”
Cashin said because companies are requiring workers to be in the office on a more regular basis, cities and surrounding suburbs will increase in value the fastest once the market picks up speed.
Cashin predicts that when rates go below 6%, sellers will see multiple bids, contingencies being waived, and appraisal gap assurances if they do decide to move.
David Newcombe, co-founder of Launch Powered By Compass, a real estate firm in Phoenix, said they are currently seeing prospective homebuyers holding off for two reasons.
The first is interest rates are too high and the second is some homebuyers still think a market reduction is coming.
Currently, housing inventory is still low and demand remains high in his market.
“Phoenix is currently one of the markets where homes are receiving multiple offers if they are priced right. Arizona is also a state that makes real estate transactions quick and simple so the Phoenix market is usually one of the first cities in the country that can indicate a change in the market,” said Newcombe.
It is predicted that house prices will hold up into 2024.
During a recent webinar, Mike Simonsen, founder and president of Altos Research, said that by now it has been clear enough for long enough that even the most strident of bubble-bursters recognizes that the housing market has held up well despite gloomy predictions walking into 2023.
Simonsen expects that there will be positive year-over-year price changes in 2023 and says prices will continue to go up in 2024.
“Right now it looks like we’re going to end the year flat to up a little bit, just a little bit. And because we’re going to end 2023 with less inventory than ’22, ’24 has positive signals for home price gains already baked into the data now,” Simonsen said.
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