Unlocking the Frozen Market

I’ve discussed our low inventory issue several times in my past blogs and newsletters. A large percentage of homeowners are currently enjoying ultra-low mortgage rates (3% +/-), and will not consider selling a home if their replacement home involves a new mortgage. The market is “frozen” as a result. Today’s average 30-year rate with no points is almost 7%, so their new rate could more than double their existing mortgage rate. This explains why most of the sellers I have been working with are either children selling the homes of their deceased or aging parents, or those moving out of state and paying cash for their new home.

The high rates are also causing buyer demand to weaken. A large majority (about 87%) of buyers are sitting on the sidelines because of the current rates.

This raises the question, “Is there a magic number, or a level that rates need to drop to that would bring buyers and sellers back into the market?” According to a September study by John Burns Research & Consulting, 4.99% is the number that would bring a majority (57%) of the buyers back into the market. Based on the chart below, only 13% of buyers are willing to purchase a home with rates at their current level, down from 21% in September when the study was done, and rates were at 6.2%. Mortgage rates dropped as low as 6.1% prior to the Fed’s aggressive .5% rate cut a couple weeks ago but have since increased by almost 1% since the cut. This certainly explains the slowdown on showings and offer activity we’ve experienced over the last month. I don’t expect much change until after the election is settled, which could drag on past the Nov 5^th election day. Given the crazy times we are living in, I think there is a strong possibility of something major happening that could move the market in either direction over the next few weeks. I’m holding my breath and hoping for the best until the election is over and settled.