Mortgage rates falling to 5% would get a swath of buyers back in the market

Declining mortgage rates have yet to break the dam on the stalled housing market, but the sweet spot on rates that would get the market moving again is about 5%.

That’s according to a new survey from Mphasis Digital Risk, which revealed that 42% of prospective buyers said a 5% rate would get them back in the market. An additional 27% said they’re targeting a 4% rate, while 20% say it’s 6%.

“Many prospective buyers started questioning the American dream of home ownership as inflation brought mortgage rates to a cyclical peak of 8% in October 2023,” Mphasis co-founder and managing director Jeff Taylor said in a statement.

“But now rates are down more than 1.5% from this peak. We’re getting closer to homebuyers’ comfort zone of low-6%, high-5% rates, and September’s anticipated Fed cuts should help buyer sentiment. This is why industry estimates call for a robust 2025 with $2 trillion in expected mortgage originations.”

According to the survey, home shoppers are optimistic about the direction of mortgage rates, with 64% saying they are either “very encouraged” or “somewhat encouraged” that rates are dropping.

But 40% of respondents said they will wait until after the November election to buy a home, which could signal that the market may not immediately react to a rate cut in September. Real estate agents often cite the election as a factor in the housing market, but a recent report from John Burns Research and Consulting concluded that a seasonal decline in home sales is actually more severe in non-election years.

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Whether the election is a factor or not, home shoppers have not rushed into the market despite the rate on a 30-year conforming loan falling to 6.55%, down from a peak of 7.87% in October 2023.

HousingWire Lead Analyst Logan Mohtashami said that high mortgage rates have created an inventory buffer. The availability of homes for sale has increased in markets across the country. This is particularly true for new homes, as builders have shifted to a business model that’s heavy on spec construction.

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