The market believes that mortgage rates may only be lowered by the end of the year.
The interest rates on home loans in the United States remain high, and potential buyers are losing confidence in the market.
At the end of last year, the average interest rate on 30-year fixed rate mortgages in the United States dropped below 7%, which made many potential buyers eager to try, believing that the Federal Reserve’s possible interest rate cuts could quickly lower mortgage rates.
However, they may be losing confidence in the market recently. According to the latest data from Freddie Mac,
“The psychological hurdle of mortgage interest rates exceeding 7% in the United States has disappointed first-time buyers who have been hoping for a reduction in mortgage rates since the end of last year. They are even more unable to afford the purchase price, and life events like buying a house can only be postponed.” Kashif Ansari, co-founder and CEO of Juwai IQI Group, a global real estate technology company based in Kuala Lumpur, told First Financial News.
Despite the high mortgage interest rate environment, housing prices in the United States are still in an upward trend. According to CoreLogic, a real estate consulting firm, the average house price in the United States is expected to rise by 3.7% from March 2024 to March 2025.
When can the stagnant real estate market in the United States loosen with long-term high interest rates and no decline in housing prices?
(‘(First Financial Information Chart)’,)
Who is still buying a house
Lawrence Yun, Chief Economist of the National Association of Real Estate Agents in the United States, said that the current significant price increase is purely due to supply and demand issues. In an April report, real estate and investment firm Hines stated that the supply of housing in the United States is 3.2 million units less than demand.
From a numerical perspective, there may be a shortage of supply and demand, but from an actual transaction perspective, is it still a seller’s market at present?
Berkshire Hathaway Home Services New York agent Sonia Bendt told First Financial reporters that although the New York market is still active, whether it is a “seller’s market” depends more on geographical location and inventory conditions, depending on the region. In certain regions with high demand, limited inventory becomes a seller’s market when there is demand.
In more cases, “with high interest rates at the moment, if the buyer’s budget is tight, they can choose to lease while waiting for the arrival of interest rate cuts. In this way, higher interest rate costs will be converted into lower purchase prices,” she said.
Amy Wang, a broker at Serhant, a real estate brokerage firm in New York, also believes that buyers in need of loans are hesitant in the current market, and many still hope to wait for low interest rates to arrive. “Only a very small number of people think they can reapply for loans in the future before buying. Now is basically a market for cash buyers.”
Amy Wang also found that although the rising interest rates have prevented many buyers from making purchases, they have also given rise to some sellers. She said, “A few years ago, many foreign buyers, in order to lock in low interest rates, usually received a mortgage interest rate plan from loan companies that remained unchanged in the first few years and fluctuated in the following years. Now that interest rates have started to fluctuate, for this group of buyers, the floating interest rate will be relatively high, and some landlords will consider selling houses.”
But overall, Ansari believes that currently, the market believes that there is little possibility of a reduction in mortgage rates within this year. “In this way, some first-time buyers are forced to change their strategies and wait longer to avoid higher and more unbearable interest rates. However, more buyers still have to wait (lower interest rates), as they may need to change houses or move, but now they have to shelve their plans.” He said, estimating that the real estate market will continue to remain sluggish in the coming months.
When is the mortgage interest rate
Amy Wang believes that the US government’s announcement of interest rate cuts will be a significant turning point for the US real estate market. “The current situation is to keep dragging on and see when it will drop. Once this news arrives, it will be a very big boost to the market,” she said.
According to data from the US Bureau of Labor Statistics, inflation in the United States has significantly slowed down since reaching its peak in June 2022, when prices rose by 9.1% year-on-year. However, the consumer price index in March this year increased by 3.5% year-on-year. However, from this year’s perspective, the inflation rate has not continued to decline as expected, and the market believes that the pace of interest rate cuts by the Federal Reserve will not be too fast.
Ansari said, “The US real estate market is now waiting for the Federal Reserve to lower its benchmark interest rate to activate, and the Federal Reserve is waiting for the Consumer Price Index to make decisions. The Consumer Price Index depends on the actual expenses of clothing, food, housing, and transportation collected by statisticians. Currently, only housing (rent) has not returned to normal from its high levels during the pandemic. Rent was lowered earlier this year due to a large number of new listings, but it has not yet been reflected in the federal government’s consumption data. Rents are usually signed all year round, and many tenants have not signed lowered leases.”
The Mortgage Bankers Association (MBA) predicts that for the remainder of 2024, the interest rate on 30-year mortgages will fall to the range of 6.4% to 6.7%. The National Association of Real Estate Brokers (NAR) believes that the average interest rate for this quarter (April June) was 7.1% and will drop to 6.5% by the end of this year.
At present, the vast majority of people in the United States who are burdened with mortgage loans bear interest rates far below the current rate. According to the analysis of data from the Federal Housing and Financial Services Agency by real estate brokerage firm Redfin, 89% of homeowners have mortgage interest rates below 6%. Many people (59.4%) have interest rates even lower than 4%.
Chen Hongming, Deputy General Manager of Evergreen Properties, located in the US capital Washington D.C., previously told First Financial reporters that this rate locking effect makes it difficult for people who want to change houses to make a move because it means they have to give up the current 3% mortgage interest rate and instead bear the nearly 7% interest rate, leading to a significant increase in monthly supply.
Ansari said, “The market believes that mortgage rates may only be lowered by the end of the year, and some institutions predict that both the housing market and prices will rise this year. However, anything can happen from now until the end of the year, with wages, immigration, elections, and other factors affecting rent. In addition, if the interest rate is lowered, the release of pent up demand will only push up housing prices again. After all, the fundamental problems of insufficient housing supply and difficulty in building affordable housing in the United States have not been truly solved.”