By: Good to Know
Mortgage interest rates have been slowly retreating since reaching a 23-year high of 7.79% in October 2023, but they haven’t dipped enough to slow the rise in house prices by much. The median existing home price has risen for 14 consecutive months to $416,700 as of August 2024 even while housing sales volume declined 4.2% year-over-year, but the impact of higher prices coupled with higher mortgage interest rates is having a cooling effect on some previously hot markets.
Over the past five years, home listing prices in the Austin-Round Rock-Georgetown, TX, metro area skyrocketed by 48.2%, but are now quickly returning to earth. In July 2024, the median listing price was $539,530, down 6.2% year-over-year. Other metro areas with lower listing prices include San Francisco-Oakland-Berkeley, CA, down 11.5% to a median listing price of $973,875; San Jose-Sunnyvale-Santa Clara, CA, down 6.6% to $1,399,750; Denver-Aurora-Lakewood, CO, down 7% to $627,450; and Miami-Fort Lauderdale-Pompano Beach, FL, down 11% to $535,000.
Price cuts nationwide are at a two-year high at 18.9%, including the Atlanta metro where 24.4% of listings had price reductions; Austin (31.4%); Denver (32.4%); Dallas–Fort Worth (30.1%); Phoenix (28%); Nashville (25.1%); Oklahoma City (22.6%); and Tampa (30.6%), among many others, which suggests some home sellers are losing their advantage over homebuyers.
Low inventories are largely to blame for high home prices, but change is afoot there, too. Listing supplies were up 22.7% from a year ago to 1.35 million housing units for sale.
Meanwhile, the Federal Reserve was holding fast to a 5.5% range in overnight borrowing rates to banks while it looked for signs that annual inflation was nearing the Fed’s target of 2%. But by mid-September, the Fed reversed its four-year policy and lowered mortgage interest rates by uncharacteristically large 0.50% points, largely due to the softening of the labor market. According to the latest Bureau of Labor Statistics release, unemployment in August was at 4.2%. Wages rose slightly but total compensation grew at the slowest pace since 2022.
According to Freddie Mac, the 30-year fixed-rate mortgage interest rate averaged 6.2% as of September 12, revealing a significant decline from 7.18% from the previous year, a difference of close to a point, or one full percent.
In round numbers, let’s look at the difference 1% makes in a mortgage, courtesy of MoneyDigest.com. If you purchased a home for $400,000 with 20% down, you’ll finance $320,000 at a fixed 30-year rate at 7% resulting in a monthly payment of $2,129 per month, not including property taxes or insurance. At 6%, your payment would be $1,919 per month, or roughly $200 for every 1% shift in interest rates. If you lived in a high-priced state like California or Hawaii, and purchased a home at $1,000,000 with 20% down, you’d finance $800,000 at a fixed, 30-year rate of 7% and your payment would be $5,322. At 6%, your payment would be $4,796, or approximately $500 less, so the higher priced home you buy, the more you’d save with a lower interest rate.
The savings over the life of the loan can be great, depending on how long you occupy your home. The 7% mortgage rate on a $320,000 30-year, fixed rate loan would mean a total of $766,428.47 over the life of the loan, or $446,428.47 in interest. At 6%, the total amount of interest paid would be $370,682.20. So, it’s not just the size of monthly payments at stake, it’s also the amount of interest over the life of the loan.
There’s no question that falling mortgage rates will make buying a home more affordable. But what’s also clear is that lower rates aren’t low enough to offset rising prices on a national basis. Listing prices are still too high for many households, and while some buyers could wait until home prices drop or for interest rates to decline further, others could try to “beat the rush”, reigniting prices and sales volume.
Another variable is the new commission rules by NAR that took effect August 17th, 2024. Listing agents in the past asked for typical 5% to 7% commissions from home sellers to split with other agents as an enticement to show and sell their listings. This decades-long method of cooperation through local multiple listing services has changed. Listing agents (on behalf of home sellers) who list homes will no longer be able to include offers of compensation to other agents in their listing information on an MLS. This puts homebuyers in the position of signing representation agreements before they tour homes with a real estate professional and potentially specifying the amount that they’re willing to compensate their agents if the seller doesn’t offer concessions that are sufficient to cover the buyer’s agent’s fees. Just as in the past, sellers are still able to offer compensation to agents besides their listing agent, but there are signs it may be negotiated as part of the prospective buyer’s overall offer rather than being uniformly offered as it had been in the past .The unknown is whether buyers will resist being on the hook for more out-of-pocket costs and represent themselves, or perhaps turn to agents who offer flat fees or a la carte services.
According to NAR, many homebuyers are in a wait-and-see holding pattern until after the presidential election. Contract signings sank to the lowest levels on record by the end of August.
The question is what sellers will do. Will they remain in a holding pattern, too, or flood supplies when interest rates fall further, which would ultimately lower prices? A recent Bankrate survey of 1,133 current homeowners found that 35% would be comfortable selling their homes in 2024 if mortgage rates fell below 6%. With rates under 6%, half said they’d be comfortable buying a home this year. However, it’s estimated that roughly 86% of outstanding mortgages have a rate of 6% or below, so interest rates might have to drop further in order to tempt more sellers to list their homes for sale.
READ MORE:
- How Lower Interest Rates Could Shape the Housing Market
- Plumbing Expert Reveals Common Food Items You Should Never Put Down the Garbage Disposal
- 7 Unexpected Reasons Your Home Always Feels Cluttered, According to Pro Organizers
- Pantone’s 2025 Color Of The Year Is ‘Mocha Mousse’ — 15 Ways To Decorate With It
- 16 Ways to Decorate With Bold Colors (Without Overwhelming Your Space)
Recent Comments