The falling mortgage rates have brought a ray of sunshine for new homebuyers in the USA. They have begun to believe that they can still achieve homeownership. But would it be that simple?
Mortgage rates in the US
Mortgage rates have been decreasing in the US since October 2023. As per Freddie Mac reports, the 30-year fixed mortgage rates fell to 6.74% from 6.88 by the end of March. Although it was 6.60% in the year 2023, the rates have comparatively risen in February 2024. But from March, the mortgage rates have reduced and such fluctuations are expected to increase in the coming months.
As per Sam Khater, the chief economist of Freddie Mac, the mortgage rates, despite the latest fall, haven’t fallen that much. This is because of the pressure that inflation continues to put on the market. The fall may witness more fluctuations in the coming time.
What are Mortgage Rates? How Do They Work?
A mortgage is a kind of loan. Here, a lender lends you money to buy a property. Interest rate is the amount you pay to the lender to borrow money. It is presented as a percentage of the total loan amount. This price you pay for borrowing money from a lender to buy a property is termed as mortgage rate. Reduction in mortgage rates often leads to more demand for properties.
Why are the Mortgage Rates Falling in the US?
- Declining inflation pressures
In 2023, the Federal Reserve increased the interest rates in the US. This was because of the fear that inflation would rise. As a result, the mortgage rates started to fluctuate. However, the affirmative economic data shows that inflation pressures will decline as a result of which the bond market will stabilize. This would result in declining borrowing costs and hence the interest/mortgage rates for home loans will decrease.
- Changing Federal Policies
Federal Reserve hasn’t yet decreased the bottom limit of interest rates. Instead, it has made a cautious statement, affecting the market sentiment. Plus, a change in the federal policies and potential fed rate cuts has contributed to reducing mortgage rates.
- Conditions of Mortgage Rate Market
The dynamics of this market were impacted when the mortgage rates grew in 2023 and people began to apply for home loans. It even impacted the stable prices of houses. At present, mortgage lenders are competing to draw potential buyers. As a result of this competition, the mortgage rates are forced to decline.
What Will Happen If Mortgage Rates Further Fall?
If the mortgage rates continue to fall due to the above reasons, the following potential situations are likely to appear.
- Homeownership Will Get Easy – It Will Attract More Buyers
With declining mortgage rates, buying a home will be more affordable. Buyers will be able to opt for a large loan amount as their monthly payments will be comparatively more bearable. As a result, the demand for houses will rise and first-time buyers will be attracted more than ever.
Some experts say that the demand has already begun to rise due to the recent drop in the mortgage rates. Hence, open houses and increased visits by first-time buyers were the most seen.
- Home Prices Will Ultimately Rise
The rising demand for homes due to affordable mortgage rates and the ability to apply for home loans will likely increase property prices. This is because there will be more demand but less supply. As a result, the prices of homes will rise.
However, the price rise can further reduce, owing to the low borrowing costs, which resulted from the declining mortgage rates. In such a market scenario of lowering supply and rising demands, rate cuts will pose a threat.
Conclusion
So, if 2024 will be the right year for homebuyers, is difficult to answer at this moment. Those, who are looking ahead to this year, can plan to buy their new home. Those, who aren’t sure and would like to wait, can look out for cheap houses for rent in San Francisco.
Let Raj Properties find you one. Raj Properties is a popular platform that lists a wide array of rented properties for US citizens. From a 1-bedroom to 5 bedroom house for rent San Francisco, it has rental spaces for individuals to families. So, you can visit the official website of Raj Properties to explore the available options. Opt for a house or apartment tour to visit the property to make an informed decision. Check it out now.