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What does the housing market need to rev back up? Lower mortgage rates.
Many Americans believe homeownership is still achievable—that is, if high mortgage rates fall, according to a recent survey from Realtor.com®.
The magic rate is in the 5% range, according to the survey. About a fifth of Americans, 22%, hoping to buy a home in the next year would consider it possible if rates drop below 6%. About a third, 32%, could make it work if rates dropped below 5%.
“Small changes in mortgage rates indeed have an outsized impact on monthly mortgage payments,” says Realtor.com Chief Economist Danielle Hale. “For first-time homebuyers, if mortgage rates drop in the [5% range], that will boost their purchasing power. For a lot of repeat buyers who already own a home, the lower rates go, the less of a jump they will take in their mortgage payments.”
(More than 5,000 U.S. consumers participated in the survey conducted between Oct. 31 through Nov. 6, 2023. Just over 1,000 of them had purchased a home in the past year, and more than 1,500 planned to do so in the next year.)
Since October, mortgage rates have been falling. They briefly flirted with 8% in the fall before dropping to the mid-6% range in mid-December. They have been bouncing around in the mid-6% range ever since.
“Mortgage rates are down more than a whole percentage point from their peak,” says Hale. “For the same monthly payment, you can afford to purchase a more expensive home or you have a lower monthly payment at the same home price. Either way, it’s a win for the homebuyer.”
Surprisingly, the youngest buyers are so determined to become homeowners that they won’t let high rates get in the way. That’s despite this group being hit the hardest by the combination of higher home prices and mortgage rates.
Almost half of millennials, 47%, and more than a third of Gen Z, 37%, would still purchase a home even if mortgage rates topped 8%, according to the survey.
The youngest would-be buyers are also the most hopeful. Nearly half of Gen Z buyers who were surveyed said they expect to be able to afford a home within the next five years. About a third of millennials, 32%, members of Gen X, 36%, and about a quarter of boomers, 26%, felt similarly.
“It makes sense that younger buyers are more optimistic. There are certainly more challenges; they tend to have lower incomes and lower savings,” says Hale. “But they’ve also got a lot of life in front of them. With incomes now outpacing inflation, we’re looking at real increases in their purchasing power.”
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