The high mortgage rates that have stalled America’s housing market are starting to decline—and could drop even further by the year’s end.
As of August 8, the average rate for a 30-year fixed mortgage fell to 6.47%, the lowest in over a year, according to Freddie Mac. With inflation cooling and the economy slowing, many experts predict that the Federal Reserve might implement one or even two rate cuts before the year concludes.
This trend is promising for both potential homebuyers and current homeowners considering selling. Ralph McLaughlin, senior economist at Realtor.com®, expects mortgage rates to decrease further in September and December, offering hope for those who have been waiting to enter the market.
But what does this mean for homeowners who are thinking about selling? And what can they expect if they do?
Here’s what real estate experts predict will happen once mortgage rates take a significant plunge.
The ‘Lock-In Effect’ Will Ease, Encouraging More Homeowners to Sell
A recent analysis by Realtor.com found that 86% of homeowners have mortgage rates below 6%, making them hesitant to sell and trade in their low rates for higher ones. “Home sellers have been sitting on the sidelines, not wanting to give up their COVID-era interest rates,” says Tan Tunador, vice president and senior loan officer with Atlantic Coast Mortgage.
However, as rates drop, this reluctance may diminish. “The faster rates drop, the less homeowners will be held in place, and we could see both new inventory and more sales,” says Danielle Hale, chief economist at Realtor.com.
More Homebuyers Will Enter the Market
Just as sellers have been hesitant to move, many buyers have felt priced out by high rates. A decline in rates could change that. “When rates drop, I think you will see pent-up demand hit the market again,” says Mason Whitehead, branch manager for Churchill Mortgage. Lower rates make home shopping more affordable, allowing more buyers to qualify for loans.
Sales Could Surge Rapidly
Sellers considering listing their homes should start preparing now. “Mortgage rates have been improving, and they are bringing potential buyers out early, many of whom gave up on buying due to low inventory or high rates,” says Tunador. Listing early may give sellers an advantage before competition increases.
“Mortgage applications have perked up, and refinancing activity is also picking up as rates decline,” says Charlie Dougherty, senior economist at Wells Fargo. If rates continue to drop, the housing market could see a significant uptick in activity.
Home Prices Are Likely to Stay High
While the market may become more active, home prices are expected to remain high or dip only slightly. “Sellers will continue to be in a historically strong position, as the U.S. housing market is still short millions of homes,” says Dan Hnatkovskyy, CEO of NewHomesMate.
However, formerly hot markets like Denver, Austin, and Phoenix might experience more noticeable price drops as smaller investors hold back. In general, though, major declines in home prices are not anticipated.
Multiple Offers Could Make a Comeback
With more buyers entering the market, sellers might once again receive multiple offers. “Sellers will be in luck when mortgage rates start to drop: They’ll have multiple offers to consider and extra leverage when negotiating,” predicts Bryson Taggart, senior agent partnership manager for Opendoor.
However, sellers should carefully evaluate all offers, considering not just the price but also the buyer’s qualifications and terms, to ensure a smooth transaction.
