Late last week at the international Jackson Hole Symposium, where U.S. Federal Reserve members and global central bank leaders meet annually, Fed Chair Jerome Powell discussed a cut of interest rates by late September. While no one knows yet how large that cut would be, it fueled speculation that a subsequent cut in mortgage interest rates could soon follow.
But the question for many remains: How low does the current 6.6 percent 30-year rate have to go before buyers re-engage the housing market? The answer, not surprisingly, is complicated.
“Assuming rates come down to 6 percent, that’s a more workable scenario, but then median home prices need to also fall to $364,000, and we don’t expect that to happen,” Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors (NAR), told The Epoch Times.
“If the rates do come down to that level and income rises 1.6 [percent] and housing prices fall 13.7 percent, single-income buyers could afford to buy a median-priced home. But we don’t see that happening in the next six to seven months.”
At current mortgage rate levels, households that could previously afford a median-priced home now have to allocate a larger portion of their income to mortgage payments.
According to Evangelou’s research published this week, only one in three households (33 percent) can afford to purchase a median-priced home without spending more than 25 percent of their income on their mortgage payment. That compares unfavorably to 2021 when mortgage rates hovered around 3 percent and more than half (55 percent) of all households met the income requirements to purchase a home.
According to the research, 28.4 million households have been priced out of the market since 2021, and 30.4 million are unable to buy a median-priced home since 2019.
The good news is that with mortgage rates falling, the housing market has reopened for some households. “The current mortgage rate levels falling below 6.5 percent does make it possible for a family (with more than one income) to buy a median-priced home,” Evangelou said.
However, as with much of the real estate environment today, good economic news is often saddled by market realities, such as a lack of inventory and rising prices. According to Realtor.com’s July housing report, 6.6 percent more homes were actively for sale compared to the same time in 2023, marking the ninth consecutive month of inventory growth. However, that inventory is still down 30.6 percent compared to 2019.
“Right now, because people are living in homes they purchased before the pandemic, the only reasons I’ve seen recently for people wanting to sell is death, divorce, job transfer, or the need to downsize,” Lisa Briganti, a realtor from Briganti Properties in Greenville, South Carolina, said to The Epoch Times.
The unwillingness to sell is known as the lock-in effect, where homeowners are unwilling to move to today’s interest rates because they purchased their homes at an average of 2.6–3.5 percent before the pandemic.
“That effect is a bigger bottleneck because homeowners just don’t want to give their interest rates up to buy another home where the payments are going to be higher. Maybe once the rates come down to 5 percent or 5.5 percent, it might open up some more opportunities and sellers are saying they can do that,” said Jeff Burke of Jeff Burke & Associates-Keller Williams Realty in Lansing, Michigan.
He told The Epoch Times that in a market with high prices, mortgage rates, and low inventory, the only real estate agents surviving are those not waiting around for the market to change.
“I tell my agents all the time—to not be a victim of the market but make the market. I literally hired through COVID because I knew listings were going to be hard to come by and for the last four years have hired for that. We’ve sent out 40,000 mailers and created a market and now have captured that inventory. I’ve gone through 27 years of changes in the market with all the ups and downs and have learned to guide the market and not be guided,” Burke said.
With interest rates falling and inventory crawling up, many buyers who have been on the sidelines are now considering getting back in the market. However, one sector that will not be able to participate in the near future is first-time homebuyers, who continue to be shut out by economic realities, according to Burke.
Burke says he’s encouraged young buyers to get into the market because they have been gifted down payments or the cash to buy an entire home.
But, according to Evangelou, the reality for most is dim.
“First-time homebuyers have many more challenges. The rates need to fall to around 2.8 percent for them to get into the market. That’s not going to happen,” she said.
