Here’s the ‘Magic' Mortgage Rate That’ll Nudge Many People Into Buying Homes

This year began with a higher level of optimism toward the housing market, and there are indicators the end of an especially tough time for buyers is near. But it's still too early to call it a buyer's market.

Many homebuyers are still waiting for mortgage rates to come down to levels they find tolerable before making a move. What will it take to get them off the fence? According to a new survey of potential homebuyers, 5% is the "magic mortgage rate" that will spur them to purchase.

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*Based on an the U.S. average rate for consumers with an Exceptional Fico score (780+) getting a conventional loan, no points, and a 20% down payment. Actual rates may vary. Click "View Rates" to contact Rocket Mortgage (NMLS #3030) for a more accurate quote.

Homebuyers waiting for lower mortgage rates

New survey data from Realtor.com shows that 1 in 5 potential homebuyers are waiting for mortgage rates to dip below 6% to be able to afford to buy a house. If rates drop even lower — below 5% — nearly one-third of potential buyers say they could afford to buy.

Since 2022, when the Federal Reserve began its campaign of interest rate hikes to tame inflation, mortgage rates have been climbing upward with little respite. Two years later, rates stand at almost 6.77%.

Unfortunately, aspiring homebuyers might be left waiting longer than they'd like for mortgage rates to drop below 6% again. Many Americans anticipated that mortgage rates would give by early 2024, because that was when the Fed was expected to announce its first interest rate cut.

But now, with the economy doing so well, the Fed has balked at the idea of cutting interest rates so soon. Some experts now predict that the first rate cut will not take place until at least late 2024. If that's the case, mortgage rates wouldn't see a significant decline until then, either.

Despite high mortgage rates and prices, many of those surveyed say they are continuing to pursue buying a home in 2024 — specifically young people. Almost half of millennials and about 4 in 10 Gen Z homebuyers say they will continue their journey to homeownership even if mortgage rates rise above 8%.

These two groups of young people are among the most confident that they will be able to afford a home in the next five years. "There are certainly more challenges [for younger buyers]; they tend to have lower incomes and lower savings," said Danielle Hale, chief economist at Realtor.com. At the same time, however, Hale adds that "with incomes now outpacing inflation, we’re looking at real increases in their purchasing power."

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