It’s not Halloween yet, but home shoppers may already be getting a good scare.
The 30-year fixed-rate mortgage, which most consumers rely on, jumped from about 6% to about 6.75% in a three-week period.
And this is after the Fed finally relented and cut its fed funds rate. Good time I know.
Prior to this rate change, mortgage rates had been steadily declining from 8%, their current cycle high which ironically occurred just before last Halloween.
Talk about a good year in numbers, down two full points. But this habit is no longer our friend, at least not yet.
Now I would like to make a case for why this might be good for the housing market.
Higher Home Rates May Be More Incentive Than Low Rates
I know what you’re thinking, high mortgage rates can’t be good in a struggling housing market.
Especially this housing market, which is currently one of the most affordable in recent history.
But bear with me here. I’ve gotten to thinking recently that low mortgage rates seem to be throwing would-be home buyers off the hook.
As noted, prices have fallen slightly from their cyclical highs, falling by about two percent.
As of mid-September, you can get a 30-year fixed rate for about 6% of the average mortgage. And actually, it’s much lower if you have a vanilla loan (high FICO, 20% down, etc.) and/or go with a discount lender.
It was the same if you paid discount points at checkout. I was even tripping over 4% highs at the time.
Surely that would be good enough to get prospective buyers to bite. But the mortgage application data did not respond.
You can blame the season, if it is a little time for prices to reach their lowest levels since the beginning of 2023.
But if you look at the periodically updated mortgage application index from the Mortgage Bankers Association (MBA), you won’t see it moving. Check out the chart above from Trading Economics.
At that time, the refund requests increased, they were allowed to be more sensitive to the level. However, given the best prices in years, home buyers did not show up.
And this was surprising because there was a narrative that they would flock to the housing market the second prices fell.
In fact, there were those who argued that they had to buy a house early in order to win. That too turned out to be a false dream. And it may all be related motivation.
Maybe Home Buyers Want Even Lower Home Equity Rates
With the power of hindsight, perhaps the motivation was the idea that lower mortgage rates simply made home buyers want better.
It’s a strange thing mentally. When you get less of something good, you want even more. And when you get more, it doesn’t seem as good as it used to be. You need even more.
Simply put, falling mortgage rates appear to be less encouraging than rising rates, as strange as that sounds.
When rates rise, there is a greater urgency to close the rate before it gets worse.
When prices drop, you may bide your time and wait for something even better. That seems to be exactly what consumers have done.
Even though they were told to rush, now they are told to wait. So not only did the low prices not drive consumers off the phone, they almost drove them even further.
Yes, I have argued recently that it is no longer about housing costs, and in fact it can be other things.
It could be uncertainty about the economy, it could be home buyer burnout, it could just be that house prices are too high. Yes, that can happen too!
However, and here’s the unknown, now that consumers have been bombarded with high prices, it can make them jump off the phone!
(Photo: Marcin Wichary)
Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.
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