Mortgage rates have been moving decidedly lower in recent weeks, with the biggest one-week drop in average rates in two years following this month’s weaker than expected report on the July labor market.
High rates have crimped buying power for potential homebuyers, but there are clearer signs now that relief is on the way.
“Last year, we hit 8% on the 30-year in the fall, and that really put a damper on our market. And now we’re around 6.5% on the 30-year fixed, with the idea we are going to be heading lower in the months ahead,” said Corey Burr with TTR Sotheby’s in Chevy Chase.
In reality, mortgage rates aren’t historically high. Thirty-year rates that fell to 3% and briefly even lower during the pandemic have tainted the memory of older homeowners and buyers, and set up unrealistic expectations for younger, first-time buyers.
“Traditionally, it is more in the fives and sixes for the 30-year fixed mortgage. That has proven to be an affordable level through the decades. And I think that is going to become our new norm,” Burr said.
In the 1990s, 30-year rates averaged between 8% and 10%. Between 2010 and 2019, 30-year rates fell from an average 7% to about 5%.
The real affordability issue is price. Home prices that rose sharply during the pandemic were made more palatable by record low borrowing costs. Prices have continued to rise, but Burr thinks that cycle may be winding down.
That does not mean prices will fall.
“We might have an extended period of time where prices stay flat. I remember back in the 1990s, about an eight-year period from 1992 to 2000 when prices stayed relatively flat,” he said.
Lower rates and a flattening of prices aren’t the only trends that will help buyers. Burr said he believes there will be less competition for properties and more negotiating power for buyers in terms of price and terms going forward.
There is already evidence of the housing market moving from strongly in favor of sellers to more neutral. In June, 19.8% of homes on the market had a price drop and 15% of homes that went under contract had the deal canceled, a record high for a June, according to Redfin.
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