Cheers to lower mortgage rates.Getty Images
Mortgage rates have been on a wild ride, and now they are inching closer to what many experts call the “magic number” of 6%. On Thursday, September 13, 2024, the average 30-year fixed weekly mortgage rate dropped to 6.2%, according to Freddie Mac. Daily rates also fell to 6.15%, marking the lowest level since February 2023. These recent drops have sparked renewed hope for prospective homebuyers who have been waiting for more favorable rates.
Just last year, mortgage rates soared to a two-decade high, with weekly rates hitting 7.79% and daily rates touching 8.03%. The sharp rise kept many buyers on the sidelines, but now, as rates fall, the market could see a wave of activity. Real estate experts like Barbara Corcoran and Robert Reffkin agree that once rates hit 6% or lower, buyers who have been hesitant may jump back into the market. Mat Ishbia, the billionaire CEO of United Wholesale Mortgage, echoed this sentiment in an interview with CNBC, stating that even a rate in the 5% range could be the trigger point for increased market activity.
The significance of the 6% mark comes down to affordability. For many buyers, especially younger ones, anything above 6% still feels high, even though it’s a far cry from the 8% rates seen just months ago. During the pandemic, mortgage rates fell to below 3%, making homeownership incredibly affordable for those who could lock in those rates. Now, with rates climbing back up, buyers are feeling the pinch, but 6% could represent a middle ground where both buyers and sellers can feel comfortable moving forward.
For example, if you’re purchasing a $600,000 home with a 20% down payment, the difference between an 8% mortgage rate and a 6% rate is substantial. At 8%, your monthly payment would be around $3,522, but at 6%, that drops to about $2,878. Over the course of a year, the difference adds up to $7,728. Even more striking is the gap between a 6% rate and a 3% rate, with the latter bringing your monthly payment down to $2,024 and saving you $10,248 annually compared to a 6% rate. Over a year, the difference between an 8% rate and a 3% rate would cost you nearly $18,000 more in payments.
These numbers are significant for anyone weighing their options in the current housing market. The so-called “lock-in effect” has kept many sellers from listing their homes, as they are reluctant to give up low mortgage rates they locked in during the pandemic. But for buyers who have been waiting on the sidelines, this dip toward 6% could be the opportunity they’ve been waiting for.
Inventory levels have already started to rise compared to last year, as some sellers are forced to move due to life circumstances. As rates continue to fall, more homes could hit the market, providing buyers with additional options. Some industry insiders believe this might be the best chance for homebuyers in the near future, as rates may not fall much lower than 6%.
Even with the improving mortgage environment, challenges remain. Home prices have not come down significantly, and supply shortages persist. Freddie Mac’s statement emphasized that while rates are falling, prospective buyers are still cautious, as they navigate high home prices and tight inventory.
For those who have been waiting for a sign, the latest drop in mortgage rates could be it. Whether the rates hit that magical 6% or even dip into the 5% range, this is the closest the market has come to a more affordable future in nearly a year. Buyers and sellers alike are keeping a close eye on the numbers, and as rates inch closer to the trigger point, the real estate market could see a shift in the coming weeks.
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