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What Mortgage Rate Would Really Motivate Homebuyers?

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What Mortgage Rate Would Really Motivate Homebuyers?

Expert opinion varies as to how low mortgage rates need to go before more buyers jump back into the market and get home sales moving again

December 17, 2023
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Image: Parradee / stock.adobe.com

Although there are plenty of factors beyond just mortgage rates that affect homebuying activity—market conditions and affordability, the general economic climate, and consumer confidence, to name a few—there's no denying that low interest rates have, historically, made borrowing to buy a home more attractive to consumers and encouraged them to pull the trigger on a home purchase. But, given the power of mortgage rates to influence homebuying activity, is there a rate that would cause home sales to really rebound?

A John Burns Research & Consulting survey in September indicated the "magic" mortgage rate is 5.5%, with nearly three-quarters of survey respondents saying a rate higher than 5.5% is not acceptable, according to luxury real estate listings site Mansion Global. But although some consumers may be playing a waiting game when it comes to interest rates, others aren't; they're losing patience and are keen to jump back into the market. 

The “magic” rate to spur activity depends how long people hold off for them to come down, said Michael Golden, co-CEO of @properties | Christie’s International Real Estate in Chicago. 

“The longer rates are higher, the less they have to come down for people to get excited,” he said. “Now that we’re in the sevens, the sixes are looking more exciting than a year ago. And for people in the sevens and eights, refinancing looks attractive when rates are in the sixes.” ...

Still, because so many sellers are “locked-in” at historically low rates below 4%, “the magic number for them might be the low to mid-fives,” Golden said. “At that point, the gap is closed enough that you’ll see more movement in the marketplace. But the longer this goes on, the higher the range.” 

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