Mortgage rates just fell to their lowest level in months—accelerating the sellers’ comeback
They could fall even further, but remember there’s a “new normal,” where mortgage rates might not ever hit rock-bottom levels again.
Mortgage rates are tumbling, and it’s thrilling news for homebuyers, just as sellers are providing more inventory.
The average 30-year fixed weekly mortgage rate fell to 6.73%, according to Freddie Mac; its lowest level since February. Last week, it was 6.78%. It’s mostly cooling inflation and anticipation of an interest rate cut by the Federal Reserve in September behind the decline. And off the back of today’s weaker jobs report, daily mortgage rates fell further. The average 30-year fixed daily rate is 6.40%, the lowest reading in a year.
Sellers were already making a comeback, and this will only accelerate their return. For a while, nobody was selling homes, plagued by the lock-in effect once mortgage rates shot up from their pandemic lows. But people could only wait for so long, and some sellers were finally ready to sell.
In May, according to Zillow, new listings from sellers rose 8% from the prior month and 13% from a year earlier. At the time, the company’s chief economist, Skylar Olsen, remarked: “Home sellers are returning.” And in June, also per Zillow, the total number of homes for sale was almost 23% higher than last year’s low level. And that trend has only continued.
Last month, according to Realtor.com, the number of homes actively for sale on a typical day was close to 37% higher than last year, and it was the ninth consecutive month of increases, finally reaching “a post-pandemic high.” Mortgage rates were falling throughout July, so that helped push sellers, too.
“Sellers continued to list their homes in higher numbers this July,” Realtor.com’s senior economist, Ralph McLaughlin, said, reporting that newly listed homes were close to 4% above year-ago levels. “We think the decrease in mortgage rates seen in July likely contributed to an increased pace of growth in listing activity,” he wrote. “We expect selling activity to continue to normalize as rates inch their way down over the next year, with potentially an unusual uptick in September if the Fed decides to cut rates.”
This isn’t to say the lock-in effect is no longer relevant, because it very much is. As of the fourth quarter of last year, about 87% of outstanding mortgage debt had a rate below 6%. So what we’re seeing is the phenomenon beginning to ease because it’s easier to give up a low mortgage rate for one that’s below 7% rather than above. And even still, the thought of losing a 3% mortgage rate for one that’s more than double is rough.
Let’s say your mortgage rate is 3%, you bought a $600,000 home, and you put 20% down: Your monthly payment is roughly $2,024 (not including taxes or insurance). And for the same situation, but with a 6.73% mortgage rate, your monthly payment is roughly $3,107. Not fun. But let’s say you were looking at an 8% mortgage rate, in October last year, then your monthly payment would be about $3,522. One is definitely better than the other, and we might not ever see those rock-bottom mortgage rates again.
“I think the new normal for mortgage rates will be around 6%,” the National Association of Realtors’ chief economist, Lawrence Yun, recently said. (And following today’s jobs report data, in a statement, he noted, “The 30-year fixed mortgage rate looks to fall to 6.5% or even lower in the upcoming weeks.”)
It’s something sellers will have to get used to, and the same goes for buyers, who seem to be pulling back because of high home prices. Mortgage rates fell in June from the month earlier, and still existing-home sales sank 5.4% on a monthly and yearly basis, while new-home sales dropped to a seven-month low.
However, while pending home sales fell from a year earlier in June, they rose from the previous month. It’s a forward-looking indicator for how sales will turn out next month. NAR’s Yun, in the release from earlier this week, said: “The rise in housing inventory is beginning to lead to more contract signings … Multiple offers are less intense, and buyers are in a more favorable position.” He added that more supply was expected to come soon—so maybe buyers will follow.
