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Expert predicts housing market reawakening as mortgage rates fall below 5%

House prices have reached a new all-time high and mortgage rates have started to fall – but that won’t yet be enough to revive the property market, according to an expert.

Even as borrowing costs fall, keeping home buyers away, the “lock-in effect” of homeowners reluctant to sell and give up their current 3% or 4% rate limits the number of resale homes on the market. the market. As buyers converge on a smaller pool of available properties, prices rise.

But there will come a time when rates fall enough to boost supply enough to cause housing prices to fall, Ken Shinoda, a portfolio manager at DoubleLine Capital, wrote in a December note.

“There is a magic number for fixed mortgage rates that I think would unlock the housing market – in other words, a price that brings together willing buyers and sellers, a market clearing price,” he said . “In my opinion, that number has a handful of 5%. »

Rates were around 5% in August 2022, and over the course of 2023, they rose from the 6% range in the first months of the year to almost 8% in October, making more difficult for aspiring homeowners to qualify for a mortgage.

With a 7% rate, a buyer buying a home with a median price of around $420,000 would need to make around $115,000 to comfortably afford it, according to Redfin’s estimate. The general rule is that a monthly mortgage payment should not exceed 30% of the buyer’s income.

Rates have fallen significantly over the past two weeks, after the US Federal Reserve signaled a more dovish stance on monetary policy. The 30-year rate averaged 6.67% as of Thursday, according to Freddie Mac data. Many in the industry expect rates to fall to around 6.5%, or even lower, by the end of 2024.

If rates fall into the 5% range, “the supply and transaction volume unleashed by mortgage rates…could push down housing prices nationwide, or at least flatten them,” Shinoda added.

“In the current environment of frozen inventory, a rate cut has the potential to revive transaction activity and ease stubborn property prices,” he added.

2023-12-27 16:34:25
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