The key determinant impacting housing demand in these areas is the influx of additional buyers resulting from the decline in mortgage rates next year. Changes in mortgage rates have a direct impact on borrowing costs. Higher mortgage rates increase the cost, while lower mortgage rates help with affordability, giving individuals more financial flexibility. Specifically, the monthly mortgage payment is $2,215 with a rate of 7.5%, while the monthly cost drops to $2,005 when the mortgage rate is 6.5%. As a result, the qualifying income decreases to $96,145 from $106,370. Hence, with this decrease in mortgage rates, more people can purchase a home without exceeding their budget. At the national level, it’s estimated that 5.8 million households will once again afford to do that.

Delving into the demographics, most of these “returning” buyers are older millennials, aged 35-44. More than 1.1 million households in this age group will again be able to afford the median-priced home if rates drop to 6.5%. Most importantly, nearly 30% of those “returning” buyers are still renting a home while they could purchase a home with a value of $375,000 by spending the same amount they spend on rent ($1,890). Finally, when considering race groups, it seems that Hispanics are poised to benefit the most from the anticipated decrease in mortgage rates next year. 4.7% of all Hispanic households – 818,820 Hispanic households – will be able to purchase the median-priced home, followed by 4.6% of their white counterparts (4.0 million). This could push up the Hispanic homeownership rate even further next year. Meanwhile, over the past decade, Hispanic homeownership has demonstrated the second-highest rate of growth (5.2%), following closely behind the gains seen in Asian homeownership.

Instant Reaction: Mortgage Rates, January 1st, 2024

Mortgage interest rates continued their decline this week and have hit the lowest level in six months since May of 2023. Mortgage interest rates are now at an average of 6.61%, easing from 6.67% last week. The typical monthly mortgage payment for a $400,000 home is now at $2,046. While NAR’s Pending Home Sales shows flat data from October to November, the recent week’s rate decline should motivate buyers who had been priced out of the market.

There are many signs of encouragement heading into 2024 in the housing market, such as more housing inventory from home builders, lower mortgage interest rates, and demographics. Last year (2023), even the youngest baby boomer (born between 1946 and 1964) turned 60 years of age. Baby boomers are the largest share of home buyers and may be looking for their retirement property. It is very bittersweet, but if you fall in this category 2024 may be a good time to downsize!…continue reading