Katherine Hare and her husband, Stephen Boyd, are retirees looking to make a move. The couple has lived in the Chapel Hill area of North Carolina, where Boyd grew up, for many years. But now, Hare wants to be closer to her family in the West Hartford area of Connecticut.
With plenty of equity built up in their home, located in a booming local economy, the couple is in a position many Americans would envy: They likely won’t need to take out a mortgage on a new property. The biggest challenge, Hare thinks, will be the long-distance house-hunting.
Still, she’s well aware that the recent decline in borrowing costs will be helpful when the couple goes to sell their own home. The 30-year fixed-rate mortgage just touched 6.09%, its lowest level in over 18 months, down sharply from the recent peak of 7.79%.
“Lower mortgage rates will definitely help,” Hare said. “It will open up the market for us. When rates were lower, things were really, really cranking around here.”
What is holding back the housing market?
Mortgage rates don’t dictate the housing market – until they do. Ask any real estate agent why buyers aren’t buying, and most will say it’s the lack of inventory. But most housing-market inventory is simply houses that other people want to sell, and with nearly 90% of all Americans with a mortgage enjoying a rate below 6%, there’s no reason to move on unless absolutely necessary. With new listings scarce, the few properties that are on the market get snatched up quickly, and prices keep getting bid higher.
That means the housing market looks a lot like the situation Hare and Boyd are about to encounter. The Federal Reserve cut interest rates by half a point Wednesday, and mortgage rates are likely to move in tandem as the central bank continues to ease.
Yes, prices may tick up as demand increases. Still, most observers think the entire housing ecosystem, not just those applying for a mortgage, will benefit from the "unlocking" effect. Many are hoping for a much healthier market after a few years of boom and bust.
“It’s market whiplash,” said Rick Sharga, CEO of CJ Patrick Company, a real estate consultancy. “We had a zero-interest rate policy for a few years to help with the unknowns of COVID. That pulled demand forward and made homes relatively affordable even though prices rose. Right now, affordability is at all-time lows, except for a period of the 1980s, so anything that will lower rates will be a boon.”
More: How do Harris and Trump propose to make housing affordable?
On Thursday, the National Association of Realtors said that sales of previously owned homes fell 2.5% in August. At an annual pace of 3.86 million, sales are running roughly where they were at the depths of the foreclosure crisis a decade ago.