Link to the article: https://www.cnbc.com/2023/04/14/homebuyers-mortgage-rate-tipping-point-is-artificially-low.html
For most homebuyers, price is not as nearly as important as the monthly payment and what determines it is the mortgage rate.
According to a new survey by John Burns Research and Consulting, 71% of potential homebuyers say that they will not accept a 30-year fixed mortgage rate over 5.5%. Interestingly, the average mortgage rate since 1977 is 7.75% with the lowest of 2.65% during 2021, the height of the pandemic but 62% of buyers said that the historically normal rate was below 5.5%. Therefore, without true statistics, consumers' perception might be a bit skewed towards the lower end.
In addition, 63% of homeowners and 83% of renters believed that homes are overpriced, which is quite understandable as mortgage rates have gone up dramatically since the low in 2021. As homebuyers are waiting for the mortgage rates to come lower below 5.5%, unfortunately, it might take a bit more time than expected as rates have been over 6% and do not show any sign of coming down yet. While the Fed's decision to cut rates might in some way influence the mortgage rates to come down, it is still not confirmed yet as inflation is still quite far from the 2% target.
3 comments:
It is interesting to see that price is not the most important determent for homebuyers rather it is monthly payments and mortgage rate. I don't see the mortgage rate coming down as the economy is struggling to counter inflation. It may take some time to cool down mortgage rates as inflation is one of the main factors of high mortgage rates so without controlling inflation, it will be difficult to bring down the mortgage rates.
While it is true that the monthly payment is an important consideration, other factors such as the location of the property, the size and condition of the home, and the quality of local schools may also be important to buyers. In addition, buyers may be willing to accept a higher mortgage rate if they believe that they are getting a good value for their money in other areas. the article suggests that homebuyers are waiting for mortgage rates to come down below 5.5%, but this may not be a realistic expectation given current market conditions. Mortgage rates are influenced by a variety of factors, including inflation, economic growth, and government policy, and they can fluctuate over time.
I am curious to see how the incredibly low rates during COVID impacts future homebuying. Monthly payments are super important when buying a home, and the Fed increasing interest rates will deter potential homebuyers from buying. There are many places in which buying houses is unreasonable with the amount people would have to be paying, but rent as well is getting to a point some people can't afford.
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