Published by FOX Business | August 19, 2024
Lower borrowing rates will only make housing more affordable for a 3- to 6-month period
Potential U.S. home buyers and sellers have kept a sharp eye on mortgage rates, which have contributed to the affordability crisis in the market.
Today, mortgage rates are more than double what they were in 2021 and are sidelining many people from the market, including sellers who locked in lower rates during the COVID-19 pandemic.
And while buyers and sellers are both waiting for rates to fall, Telsey Advisory Group Senior Managing Director Joe Feldman and Realtor.com senior economist Ralph McLaughlin say affordability will still be an issue in the long run.
In the near term, lower borrowing rates will make housing more affordable over a three- to six-month period, McLaughlin said. But eventually, they will “manifest themselves into price growth and offset the decrease in mortgage payments.”
When borrowing rates come down, it means buyers have more money that they can borrow. In other words, they have more purchasing power.
“They can actually pay more for a home than they otherwise would,” McLaughlin said, adding that “when they go to bid on a house… they can bid up to price more than when mortgage rates were higher.”
That leads to price growth in the market, but that doesn’t happen right away. Although buyers can borrow more, they typically won’t unless there are a lot more buyers, or competition, in the market, according to McLaughlin.
The issue is that a decline in mortgage rates will eventually drum up that demand, “resulting in upward pressure on home prices and impacting affordability,” Feldman said.
Mortgage rates have been falling, though they haven’t dropped below 3% since November 2021.
