Navigating Real Estate: The Complex Impact of Mortgage Rates on Homebuyer Interest

In the past week at the international Jackson Hole Symposium, where U.S. Federal Reserve members and global central bank leaders meet annually, Fed Chair Jerome Powell hinted at a possible interest rate cut by late September. While the exact size of the cut remains uncertain, it has sparked speculation that mortgage interest rates could also decrease soon.

However, a key question persists for the real estate market: How much lower must the current 6.6 percent 30-year mortgage rate drop before homebuyers re-enter the market? The answer, as expected, is complex.

“Even if rates fall to 6 percent, it could create a more favorable environment, but median home prices would also need to decline to $364,000, which we don’t anticipate,” Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors (NAR), told The Epoch Times.

If mortgage rates do fall to that level, and income rises by 1.6 percent while housing prices drop by 13.7 percent, single-income buyers could potentially afford a median-priced home. However, we don’t foresee that happening within the next six to seven months.

at the present mortgage rate levels, households that could previously afford a median-priced home now need to allocate a larger portion of their income to mortgage payments.

According to Evangelou’s recent research, only one in three households (33 percent) can currently afford to purchase a median-priced home without exceeding 25 percent of their income on mortgage payments. This is a stark contrast to 2021 when mortgage rates were around 3 percent, and over half (55 percent) of households met the income requirements to purchase a home.