This week, US mortgage rates fell below 6%, breaking a significant barrier following years of elevated borrowing costs that have excluded millions of potential buyers from the market. On Thursday, the average 30-year fixed mortgage rate declined to 5.98%, marking the first occurrence of this level since 2022, as reported. Homeowners who obtained exceptionally low interest rates during the pandemic have found minimal motivation to sell and transition to the elevated borrowing costs of the present day. The prevailing reluctance has resulted in a scarcity of inventory, thereby sustaining elevated prices.
However, a mortgage rate starting with a “5” may encourage additional buyers to enter the market, potentially alleviating the lock-in effect that has constrained inventory, according to some experts. “Nationwide we’re seeing inventory start to stabilize and even rise modestly, which could indicate that homeowners are becoming more comfortable with the current rate environment to consider a move,” stated Bhavesh Patel. “In certain areas throughout the US, we are beginning to observe six or more months of inventory, which may result in more advantageous circumstances for buyers.” Although current rates remain elevated relative to the initial phase of the pandemic, this week’s average rate of 5.98% marks a notable decline from the beginning of last year, when mortgage rates exceeded 7%. “A 0.25% drop in the rate can enable a buyer to afford about 2.5% more house while keeping the same monthly payment,” Patel stated.
Decreasing mortgage rates are enhancing purchasing capacity. This week, a Zillow analysis reveals that the median-income household in the US can now afford a home priced at $331,483, reflecting an increase of over $30,000 in buying power compared to the previous year. The analysis revealed that the median-income household has experienced an increase of approximately 82,300 homes that now fall within their financial reach compared to the previous year. “While buying power has already increased $30,000 from last year, mortgage rates below 6% could represent a significant psychological threshold,” stated Kara Ng. “Round numbers hold significance, and that headline alone may encourage numerous sidelined buyers to reassess the housing market.” Nonetheless, the enhancements in affordability may not resonate as substantial for certain individuals in the market for a home. Since 2020, home prices have experienced an approximate increase of 50% and currently remain close to historical peaks.
The median price for an existing home increased in January, marking the 31st consecutive month of growth, as reported. The increase in home values has resulted in a substantial rise in net worth for the two-thirds of Americans who own homes, contrasting sharply with the stagnant net worth of renters who have not experienced comparable financial benefits. While President Donald Trump asserts his intention to address affordability issues for Americans, he has recently expressed a desire to prevent home prices from declining significantly. “Individuals who possess their residences will maintain their wealth. We’re going to keep those prices up,” he stated last month.