Mortgage Rates Hit the Pause Button… Should Buyers Do the Same?

Market Update

Coming Soon

Mortgage rates went sideways this week and remain slightly above 7%. It was also a tame week for economic reports.

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The QCEW (Quarterly Census of Employment and Wages) is a report that reconciles the actual data released previously in the BLS (Bureau of Labor Statistics) Jobs report. Guess what… the BLS reporting that Wall Street traders rely upon reported 2.5 million jobs created during this time period (Q2 2023 to Q2 2024).

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The QCEW, using actual data, reduced this number from 2.5 million down to 1.246 million new jobs created, over 100,000 jobs overstated per month! The data suggests the job market is not as strong as widely believed.

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That said, Wall Street typically trades on new reports, not old ones. The transition to a new administration is creating uncertainty, and markets will remain cautious to see what changes occur. Solid trends may not emerge for months, likely not until the second half of 2025. Mortgage rates are expected to remain near current levels for the next six months.

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Buyer activity has also slowed, but this strategy may not be the best move.

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The existing home sales reported in October were actually up 3.5% month over month. The most likely explanation is that interest rates were approaching 6% in September, prompting buyers to jump into the market, which translated into October sales.

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Buyer demand remains strong. According to MBS Highway, the median age of the first-time homebuyer has increased from 33 years old to 38 years old. Demographically, millennials are entering their peak homebuying years over the next three years, with the population peaking at nearly 4.2 million in 2027.

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Many of these potential buyers will need housing. Young adults cannot remain at home indefinitely, and inherited wealth from baby boomers is expected to help some enter the housing market.

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The shortage of housing remains a pressing issue. Over the last 15 years, not enough homes have been built to meet population growth. The National Association of Realtors estimates a shortage of 5 million homes.

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Now is an opportune time for serious buyers to act. Inventory levels are higher, homes are sitting on the market longer, and some sellers are becoming more motivated, offering concessions. Waiting to purchase may result in missing out on favorable opportunities before the market becomes more competitive.

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Some may wonder why buying at a higher interest rate makes sense. When interest rates drop, home values tend to increase, which could make waiting more expensive.

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For example, purchasing a $500,000 home with 10% down results in a mortgage of $450,000. At an interest rate of 7%, the annual interest cost would be approximately $31,500.

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Waiting for rates to drop to 6% could result in paying upwards of $525,000 or more for the home, assuming a 5% appreciation. The new loan amount would increase to $472,500, and the annual interest at 6% would be approximately $28,350. While the lower rate reduces interest payments, the higher purchase price would mean paying an extra $25,000 for the home to save $3,150 in interest. Additionally, refinancing from a 7% loan to 6% later would allow buyers to lower their monthly payments.