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This year has been a major disappointment for the real estate industry, as elevated mortgage rates and record home price growth continue to stifle sales. The Federal Reserve’s recent decision to drop the federal funds rate by half a percentage point has provided a silver lining, with agents hoping it will be the catalyst to temper mortgage rates and create the momentum for more robust buyer and seller activity.
Danielle Hale
“I expect that we’ll see this mortgage rate drop start to bring in buyers in the spring market,” Realtor.com Chief Economist Danielle Hale told Inman. “We’ll see somewhat of a busier fall than usual, but I think a lot of home shoppers are going to use this information to plan for the spring season.”
With a spring revival on the horizon, Hale said now’s the time for agents to set homebuyers and homesellers up for success by educating them on how to maximize their buying power, navigate slower market conditions, and seize future rate cuts by boosting their credit score and savings.
“There are things buyers and sellers can do now that are over and above whatever the market trends are. They can pay down debt, which improves their credit score and overall debt-to-income ratio,” she said. “They can improve their loan-to-value ratio by offering a larger down payment or buying a lower-priced home. Or for the biggest savings on a mortgage rate, advise them to shop around.”
Hale said she’s excited to share additional insights in October during her Inman Connect Austin session, which will help agents understand how to maximize current market conditions and set the stage for a successful fourth quarter. “These things make a huge difference,” she said.
Inman: Thanks for your time today, Danielle. After a lackluster summer market, a lot of people are hoping the Federal Reserve’s long-awaited federal funds rate cut will lead to a much better fall. How might the rate cut impact sales in the coming months?
Hale: Mortgage rates have already declined by 170 basis points from their October 2023 high. This rate cut by the Fed was widely anticipated by the market, and if you look ahead, the Fed has promised additional cuts.
In general, mortgage rates could go down, but I think not a ton before we get to the end of this year. I expect them to settle somewhere around where they are now and 6 percent by the end of the year, and as we move into 2025, we’ll see some additional easing and probably get into the high 5 percent range.
How does the recent easing in mortgage rates shake out in dollars? What boost in buying power can the typical homebuyer expect to experience?
I’m a strong believer in online tools like mortgage calculators because small changes in mortgage rates can have a pretty big effect on the bottom line. So if we were to compare October 2023 with the most recent couple weeks of data where mortgage rates are in the 6.2 percent range, people can potentially save more than $340 per month on their mortgage payments. Another way people can approach this problem is, if they budgeted to buy a home in October 2023 and still have that same budget, they have more than $70,000 of extra purchasing power.
The reality is most consumers are probably gonna land somewhere in the middle of reducing mortgage payments a little bit or maybe stretching their home price target a little bit to get into the market. Either way, this is a lovely win for consumers, especially when you think about the fact that monthly mortgage payment is a recurring expense. So a little bit of savings there can go a long way.
I wrote a brief about the National Association of Realtors’ latest existing-home sales report and Bright MLS’ chief economist noted that easing mortgage rates is only one part of helping homebuyers. The other part is getting home affordability under control. What trends are you anticipating in terms of price growth? Will homebuyers get a break on that too this fall?
Yeah, absolutely. When we do mortgage rate savings analysis, we look at potential savings, but also the additional buying power because it is still the case that in many markets across the country, there aren’t as many homes for sale as was common before the pandemic. So we still see home sales prices rising, and in a lot of markets, we also see asking prices going up as well. The housing market remains relatively competitive [and] the drop in rates is likely to bring some buyers back in and could enhance that competitiveness.
But two factors are going on — there’s the market momentum, which is picking back up, and there’s also the seasonal momentum in the housing market. At Realtor.com, we have a report called ‘The Best Time to Buy,’ where we look at those seasonal dynamics, and what we find is that Sept. 29 to Oct. 5 is the best time to buy because most buyers have usually either found a home or re-signed a lease. So we see home shopper activity pull back moving into the fall because home prices dip as homes sit on the market a bit longer.
Eventually sellers also kind of pull back in the housing market, but that happens a little bit later. So this best time to buy is a seasonal sweet spot where buyers could save up to $14,000 compared to peak summer prices and they’re still likely to see 37 percent more homes on the market than at the start of the year. It’s a really good opportunity.
Not everyone is maybe necessarily ready to get into the fall market, which is why I expect that we’ll see this mortgage rate drop start to bring in buyers in the spring market. We’ll see somewhat of a busier fall than usual, but I think a lot of home shoppers are going to use this information to plan for the spring season. So spring of 2025 is going to be even bigger.
We’ve talked quite a bit about homebuyers, so let’s shift the focus to homesellers. They were spoiled in 2020 and 2021 — I can’t tell you the number of talks I had with agents where a listing went under contract in 24 hours for five or six figures above the asking price. Those days are clearly behind us, and sellers have since struggled to adjust. What does the landscape look like for sellers now?
I think sellers had it easy over the last couple of years with the housing shortage creating a lot of opportunity for them to be in control and in the driver’s seat. As inventories are growing, in part because of construction and in part because of slower buying activity, sellers have to be more mindful of the competition and market dynamics than they may have been over the last few years.
One of the ways that this manifests is that sellers might have to expect a somewhat longer time on the market. In our data, we’re seeing that homes are sitting on the market for seven days longer this year compared to last year. And then when we do a cross-sectional analysis looking at how changes in homes for sale have impacted the change in time on market, we find that for every six percentage point increase in inventory, sellers can expect time on market to increase by a day. So if you are in a market that has a lot more for sale inventory, you’ll have to temper those expectations even more.
The other thing that is important for sellers is being mindful of pricing trends and making sure they’re not getting too far ahead of the market. Realtor.com data suggests that although they’re not at an all-time high, price reductions are more common now than they were one year ago. That may change as the market picks up, thanks to the drop in interest rates. But for right now, it makes sense for potential sellers to keep an eye on price trends, and make sure that they’re pricing their homes competitively.
As price reductions become more common, do they hold the same weight with homebuyers? In the past, I’ve heard of price reductions — especially more than one — kind of being a kiss of death for a listing because buyers start to think there’s something wrong.
I think that’s a great question, but it’s the type of question that is great for local real estate agents to answer because we see a lot of variation across markets. In some areas, it’s pretty common for sellers to price high and plan on doing a cut or two. In other markets, price cuts are a little bit more rare. In markets that tend to be a little bit more fast-moving, sellers probably want to make sure they hit the nail on the head with the initial price instead of having to count on that price reduction.
So, again, there’s a pretty wide variation across markets, but something that is somewhat more consistent is that in most markets that we study, price cuts are becoming more common now than they were a year ago. That is a sign of relatively slower market conditions.
Outside of mortgage rates, price reductions and other key economic factors, what other big-picture trends are driving the market right now?
There are still a lot of younger households that are waiting for the opportunity to get into the housing market. I think first-time homebuyers are going to continue to be an important part of the housing market, and trends in the rental market also matter because it’s about the buy versus rent comparison and trying to figure out what makes the most financial sense.
Fortunately, Realtor.com data shows that rents have largely stabilized and that means it’s giving renter incomes a chance to catch up. Renters are putting a smaller portion of their paycheck every month towards rent, so that is going to help enable some more savings to enable those households to get into the housing market and buy.
That’s great news. So, last but not least, let’s talk about agents. How can they take insights from our conversation and the many reports Realtor.com produces, and use them to guide their clients through the market?
I talked about the savings that consumers can have now as a result of the rate mortgage rate declines, but buyers may not necessarily be aware of those savings and that opportunity. So I think agents have an important role to play in reaching out and making sure consumers have this information and, more importantly, understand what it means for them and their bottom line.
I think the opportunities with sellers are similar — making sure that sellers are aware that we’re likely to see an uptick in buyers in the spring as lower mortgage rates create more opportunities for home shoppers. So, if you want to get ready for the spring season, now is the time to start thinking about what you need for your next home and then taking those steps to prepare to list and then buy another home.
We have survey data that says 47 percent of sellers are taking longer than a month to get their home ready to sell, so getting them to start that process early can mean more flexibility.