02/27/24

3 reasons interest rates matter so much right now

Raise your hand if you’re tired of talking about interest rates. If you fit in that category, you certainly won’t love this special February message. But it’s the topic that is still on the minds of most people – real estate professionals, and our customers alike. 

Here are three different ways continued lower mortgage rates will affect buyers, sellers and current homeowners. Each one shows why everyone in real estate would welcome potential interest rate cuts as we head toward the spring homebuying season and beyond.

A small shift means big things for buyer affordability. “Homebuyers on a $3,000 Monthly Budget Have Gained Nearly $40,000 in Purchasing Power.” This headline from Redfin last month perfectly summed up why interest rates really do matter when it comes to housing affordability and monthly mortgage costs. It’s up to us as real estate professionals to convey that even the smallest decline will save a buyer thousands over the life of a loan. This is especially relevant now that discussions are trending in favor of buyers.

Consider this portion of the article: “The monthly mortgage payment on the typical U.S. home, which costs roughly $363,000, is $2,545 with a 6.7% rate. The monthly payment was nearly $200 higher–$2,713–when rates were 7.8%.” That’s hundreds of dollars of savings each month!     

Sellers will be more motivated to list as rates come down. One of the main reasons for the lack of inventory in recent years was the so-called “rate-lock” phenomenon. This refers to the idea that people who would normally be ready to sell are waiting to move to a new home because they are deterred by the prospect of a new mortgage with higher payments at a higher rate than their current home. However, as rates come down, more people will be ready to list, especially if home prices stay so strong. In 2023, there were about 15% fewer listings than the year before, but the number of new listings each week has been growing for the last few months, according to Realtor.com.

Recent homebuyers want to refinance. One of the most common phrases house hunters heard during the last two years was, “Date the rate. Marry the house.” Well, as interest rates continue to come down, some homeowners will be looking around for a better rate that fits their long-term plans. Just how many interested people are out there? According to a September 2023 survey from U.S. News & World Report, 84% of people who bought in the last year planned to refinance, with a majority of people hoping to do so once rates fell below 6%.     

As rates dip, it may be time for real estate professionals to guide clients through refinancing to better suit their long-term financial goals. And remember we can help complete your refi transactions, too!

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