The Impact of Lower Mortgage Rates Is Already Being Felt in These Five Markets

Key Takeaways:

– Mortgage payments are decreasing and interest rates are starting to dip, leading to an uptick in homebuyers returning to the real estate market.
– Redfin’s Homebuyer Demand Index has increased by 10% from the previous month, indicating a higher level of interest in homebuying services and tours.
– Pending sales have seen a smaller decline compared to previous years, while new listings have increased.
– Sales price increases have been observed in regions of Florida, while areas like Austin and San Francisco have seen a decrease in home prices.
– New listings have declined in some metro areas, but have increased in others, such as Phoenix and major cities in Texas.
– Real estate investors may benefit from the decline in mortgage rates and increased activity in the market.
– There is a possibility of a supply crunch if current homeowners do not put their homes on the market despite the decline in rates.
– Metro areas with falling demand, such as Texas, present opportunities for house hunters as prices decrease and new listings increase.
– The Federal Reserve potentially cutting rates could make mortgages cheaper and further increase demand for real estate.
– Buying a home now before competition increases may be a favorable decision.

BiggerPockets:

Mortgage payments are decreasing, which has some house hunters returning to the real estate market. According to the latest data from Redfin, for the four weeks ended Dec. 31, 2023, the median mortgage payment was down 14% compared to October’s all-time high. Meanwhile, the weekly average rate in early January 2024 was at 6.66% for a 30-year fixed-rate mortgage, compared to 7.79% in October.

This means homebuyers are finally getting a break from skyrocketing interest rates. And as rates start to dip, some house hunters are taking advantage of an uptick in listings. Redfin’s Homebuyer Demand Index, which measures requests for tours and homebuying services, was up 10% at the end of December from the previous month to its highest level since August, although it was down 6% year over year.

“It’s all about perspective,” said Las Vegas-based Redfin agent Shay Stein in a press release. “Two years ago, buyers would have cried about a 6% mortgage rate. Now, they’re happy they’ve dropped down to the mid-6’s.”

What The Data Says

The dip in mortgage rates is having an impact on the housing market. Pending sales were down 3.3% year over year, the smallest decline since January 2022. Meanwhile, new listings were up 9.5% year over year, with active listings falling 3.9% in the same period.

Homebuyer Demand Index (2020-2023) – Redfin

Of course, the data isn’t the same across the country. In some metro areas, sales fell while pending sales increased. Regions of Florida had some of the most significant sales price increases over the year, which is in line with other data, as the Sunshine State remains a popular homeowner destination.

Metros With Biggest Year-Over-Year Increase in Pending Sales Metros With Biggest Year-Over-Year Decrease in Pending Sales
Dallas (11.3%) Providence, Rhode Island (-15.4%)
Milwaukee (9.3%) New Brunswick, New Jersey (-13.6%)
Cleveland (6.3%) Newark, New Jersey (-12.5%)
San Jose, California (5.6%) New York City (-10.8%)
Chicago (5.6%) Atlanta (-10%)

Meanwhile, home prices in some areas like Austin, Texas, and San Francisco are on the decline as more people are starting to leave some once-popular metro areas.

Metros With Biggest Year-Over-Year Increase in Median Sale Price Metros With Biggest Year-Over-Year Decrease in Median Sale Price
Newark, New Jersey (18.2%) Fort Worth, Texas (-3.1%)
Anaheim, California (18.1%) Austin, Texas (-1.7%)
West Palm Beach, Florida (15.2%) San Francisco (-1.1%)
Fort Lauderdale, Florida (15.1%) Denver (-0.4%)

New listings have also declined in 11 metro areas, including San Francisco (-35.3%), Atlanta (-11.5%), and Providence, Rhode Island (-9.8%). However, they’ve jumped in some major cities, including Phoenix (23.5%), as well as Austin, San Antonio, and Dallas, Texas (all up 20.9%, 18.3%, and 16.4%, respectively).

What This Means for Investors

So, what does all this data mean for real estate investors? First, the decline in mortgage rates is encouraging, even if it’s still relatively high overall. And some experts think it could encourage more house hunters to start searching for homes again.

Shri Ganeshram, founder and CEO of real estate site Awning, told Bankrate he expects an increase in activity at the start of the year, which “could lead to a more dynamic market than usual for this period.”

Meanwhile, Rick Sharga, founder and CEO of CJ Patrick, also told Bankrate he anticipates a modest first quarter of weak sales and modest price increases. But dropping mortgage rates “will probably continue to decline through the first quarter—bringing more prospective buyers back into the market.”

Still, it’s possible that rates won’t drop far enough for current owners to put their homes on the market, which means house hunters could continue facing a supply crunch.

The Bottom Line

Mortgage rates are still high, but the recent decline has been welcoming for homebuyers. And while sellers are generally still not tempted to put their homes on the market given the current rates, keeping supply low, there are opportunities for house hunters.

This is especially true in metro areas with falling demand. In Texas, prices are falling, even as new listings increase. With signs that the Federal Reserve could cut rates this year, that means mortgages could get cheaper, which would likely increase demand for real estate. 

In other words, if you find a home you can afford, now might be the time to buy—before the competition increases.

More from BiggerPockets: 2024 State of Real Estate Investing Report

After more than a decade of clearly favorable investing conditions, market dynamics have shifted. Conditions for investment are now more nuanced, and more uncertain. Download the 2024 State of Real Estate Investing report written by Dave Meyer, to find out which strategies and tactics are best suited to win in 2024. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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Property Chomp’s Take:

Are you in the market for a new home? Well, now might be the time to start looking. Mortgage payments are decreasing, which is attracting house hunters back to the real estate market. According to the latest data from Redfin, the median mortgage payment was down 14% compared to October’s all-time high for the four weeks ended December 31, 2023. Additionally, the weekly average rate for a 30-year fixed-rate mortgage in early January 2024 was 6.66%, compared to 7.79% in October. This decrease in mortgage rates means that homebuyers are finally getting a break from skyrocketing interest rates.

As rates start to dip, some house hunters are taking advantage of an uptick in listings. Redfin’s Homebuyer Demand Index, which measures requests for tours and homebuying services, was up 10% at the end of December from the previous month, reaching its highest level since August. Although it was down 6% year over year, this increase in demand shows that buyers are becoming more active in the market.

“It’s all about perspective,” said Las Vegas-based Redfin agent Shay Stein. “Two years ago, buyers would have cried about a 6% mortgage rate. Now, they’re happy they’ve dropped down to the mid-6’s.” This shift in perspective is encouraging buyers to take advantage of the current market conditions.

The dip in mortgage rates is having a noticeable impact on the housing market. Pending sales were down 3.3% year over year, the smallest decline since January 2022. However, new listings were up 9.5% year over year, with active listings falling 3.9% in the same period. This suggests that although sales may be slightly down, there is an increase in supply, giving buyers more options to choose from.

Of course, the data varies across the country. Some metro areas experienced increases in sales, while others saw declines. Regions of Florida, for example, had some of the most significant sales price increases over the year, aligning with the state’s popularity as a homeowner destination.

On the other hand, home prices in areas like Austin, Texas, and San Francisco are on the decline as more people are leaving these once-popular metro areas. This shift in demand is creating opportunities for buyers in these locations.

What does all this data mean for real estate investors? First, the decline in mortgage rates is encouraging, even if rates are still relatively high overall. Experts predict that this decrease in rates could attract more house hunters to start searching for homes again, leading to a more dynamic market. While the first quarter may see weak sales and modest price increases, dropping mortgage rates will likely continue to decline, bringing more prospective buyers back into the market.

However, there is a possibility that rates won’t drop far enough for current owners to put their homes on the market, leading to a supply crunch. This means that house hunters could continue to face limited options. Nevertheless, there are opportunities in metro areas with falling demand, such as Texas, where prices are falling despite an increase in new listings.

With signs that the Federal Reserve could cut rates this year, mortgages could become even cheaper, leading to increased demand for real estate. Therefore, if you find a home you can afford, now might be the time to buy before the competition increases.

In conclusion, mortgage rates are decreasing, making it a favorable time for homebuyers to enter the market. While sellers may not be tempted to put their homes on the market due to current rates, there are opportunities for house hunters, especially in areas with falling demand. As the Federal Reserve considers rate cuts, the cost of mortgages may reduce further, increasing demand for real estate. So, if you’re in the market for a new home, now might be the perfect time to make a move.

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