Mortgage rates have fallen quite a bit since their peak last October. Now sitting around 6.6%, they’re down more than a full percentage point in just a few months.
But does that mean those rates are actually appealing to borrowers? Not necessarily — at least to those considering a move-up purchase.
According to Redfin, 89% of current mortgagees have a rate of under 6%. That means nearly nine in 10 have little incentive to list their homes and buy anew.
What does that mean for housing supply, and how much further do rates have to fall to make a difference? Here’s what you should know.
Find your lowest mortgage rate. Start hereMortgage rates for current homeowners
About 89% of mortgaged homeowners have an interest rate under 6% — well below today’s average. While that’s down from the almost 93% who had a rate that low in 2022, it’s a significant share nonetheless — and a big barrier to opening up more existing housing supply.
Per Redfin’s analysis, current homeowner mortgage rates break down like this:
Share of homeowners | Current mortgage rate |
89% | < 6% |
78% | < 5% |
59% | < 4% |
23% | < 3% |
Housing supply has been low for decades now, and that shortage has played a key role in the run-up in home prices in recent years — particularly during the red-hot homebuying days of the pandemic.
And as it stands, there’s not much incentive for things to change. With almost 90% of homeowners sitting on rates under 6%, trading in for today’s 6.6% rate (or potentially a higher one if your credit score’s not great) could mean a major jump in interest costs and monthly payment.
While some may be forced to make the move due to changing jobs or life circumstances, the bulk of homeowners are more likely to stay put, potentially renovating their existing homes instead.
Find your lowest mortgage rate. Start hereWhat would it take to make a difference?
Of course, if rates continue to fall — which most expect if the Federal Reserve cuts its benchmark rate this year as indicated — it could turn the tables and get homeowners off the sidelines. That fall would have to be notable, though.
If rates fell to 6%, for example, then only slightly more homeowners might be willing to list their homes and enter the market. (In this case, only about 11% of homeowners would be either getting a lower rate or trading in for a rate around the same range.)
Should rates drop further, an additional chunk of supply could open up. At a rate of 5%, for example, about 21% of homeowners could get a similar or lower rate than their current one.
Unfortunately, that second scenario’s not likely anytime soon. While most experts do predict mortgage rates will fall further this year, the declines are projected to be fairly small. The Mortgage Bankers Association, for instance, predicts an average 6.1% rate on 30-year mortgage loans by the end of 2024. Fannie Mae, on the other hand, is eyeing a 5.8% average. According to both MBA and Fannie Mae, rates could drop to 5.5% by the end of 2025.
All would be improvements over today’s rates and could start to “thaw” the current iced-in effect that existing homeowners are facing, according to Fannie Mae. Still, the mortgage purchaser says, “a full recovery to the pre-pandemic sales rate is expected to take years.”
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