According to Jirolower mortgage rates could make this fall home buying season a busy one. “Lower mortgage rates and increased inventory are creating a tremendous opportunity for homebuyers during unprecedented times,” the real estate giant said.
Inventories remain down from pre-pandemic levels
Zillow, which operates nationwide, reported stock Sales in August increased 22% compared to the same month last year, but were still 31% lower than pre-pandemic levels in August 2019. Meanwhile, the number of new listings increased slightly on a monthly and annual basis, but was down 21% compared to the same month in 2019.
in Separate reportZillow reports that unlike at the height of the rate hikes, when it was cheaper to rent than to buy, the opposite was true for 22 of the 50 largest U.S. subways. New Orleans, Chicago, and Pittsburgh offer the most significant savings when comparing rent and mortgage payments, assuming buyers purchase with a traditional 20% down payment.
Orphe Divounguy, senior economist at Zillow Home Loans.
This analysis shows that homeownership may be more within reach than most renters think. Coming up with a down payment remains a major barrier, but for those who can manage it, homeownership can have lower monthly costs and the ability to build long-term wealth in the form of home equity. Lessor. With mortgage rates falling, it’s a great time to see how affordability has changed and whether it makes more sense to buy than rent.
5.25% is the magic number
wall street journalcited Moody’s Analytics and wrote that interest rates on 30-year fixed mortgages would need to fall to 5.25% for the monthly payment on a $419,000 home to approach the average U.S. rent of $1,840.
According to a report on realtor.comhomebuying activity this fall is likely to be seen in expensive California cities and the East Coast, where interest rate cuts could have the biggest impact on monthly mortgage payments.
Many economists are divided on how busy the fall market will be. The Fed’s 0.5 point rate cut makes sense, but many feel that the buying and selling will not begin in earnest until 2025, especially in the spring, as the market anticipated this in advance and adjusted accordingly.
“We should get back to pre-pandemic norms,” said Thelma Hepp, chief economist at CoreLogic. said in an interview with USA Today. “The pent-up demand is there, but the lower the interest rate, the better.”
One of the major contributors to the level of activity depends on available inventory and home prices. According to the latest S&P CoreLogic Case-Shiller Home Price Indexended in June, U.S. home prices recorded an annual increase of 5.4%, and despite recent interest rate declines, purchasing remains out of reach for many homeowners and potential investors. It becomes.
“Upward pressure on home prices makes this the most unaffordable housing market in history,” said Lisa Sturtevant, chief economist at Bright MLS. In her analysis she said:.
“For the best possible outcome, we first need to see a significant increase in the inventory of homes for sale,” said Keith Gumbinger, a vice president at the online mortgage company. HSH.commentioned in. USA Today article. “This additional inventory will help ease upward pressure on home prices and help them smooth out or perhaps even moderate to some extent from peak or near-peak levels.”
Cutting interest rates too soon could have negative effects
Many investors are expecting further rate cuts, but cutting rates too soon could send the housing market into a frenzy, penalizing both buyers and investors, resulting in higher prices and eradicating inventory growth. There is a possibility that This is a double-edged sword, as lower interest rates allow homeowners with fixed rates to sell, creating more inventory. However, if interest rates drop sharply, prices will rise.
According to recent information, freddie mac reportinventory shortages remain well below pre-pandemic averages for now.
“I don’t think we’ll see a significant increase in the supply of existing homes for sale until mortgage rates return to the low 5% range, so it probably won’t be until 2024,” said C.J. Patrick Company founder and CEO. CEO Rick Sharga said. said the market intelligence and business advisory firm. forbes.
Commercial real estate investors could receive quick relief
The Fed’s rate cuts directly impact commercial real estate investors with variable rate mortgages. This is because home loans are linked to short-term interest rates such as SOFR and prime. Lower interest rates also increase liquidity throughout the financial system.
“Interest rates are rising faster and higher than in recent memory, reducing the cash flow scope for many transactions,” said Al Brooks, head of commercial real estate at JPMorgan Chase & Co. Ta. stated on the company’s website. “As a result, commercial real estate lenders have had to draw down additional reserves from their portfolios.”
“Lower interest rates increase cash flow coverage and reduce banks’ loan loss reserves,” Brooks continued. “You can then put lower reserves back into the market, which can drive more trade flow.”
Therefore, it becomes easier for prospective commercial real estate borrowers to obtain loans from banks. Even if interest rates aren’t what investors want, given how long commercial real estate deals take to close, it’s important to look for opportunities and engage lenders early in anticipation of further rate cuts. It’s probably a good idea to start a conversation. Inspections, lease audits, financing, etc. For commercial investors nearing the end of their loan term, lower interest rates are a good time to refinance to reduce repayments, save money on interest, and free up cash for renovations or property purchases, Brooks said. I advise that it is possible.
final thoughts
If there was ever a time to buy and own real estate, it’s now. With the Fed set to cut interest rates for 18 months, increasing affordability and likely increasing prices, you can make a profit with minimal effort by simply buying now and selling once rates are cut. is expected. Of course, that means buying well and not overpaying, regardless of the asset class.
Regardless of your investment preference: commercial, residential, flip, or buy-and-hold, buying this fall should prove your foresight before the next round of rate cuts.
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Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
