How low do mortgage rates have to go to lure back homebuyers?

Plus — a historic gem in San Diego awaits

͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌ ͏‌  June 17, 2023 • Issue #97 Happy Saturday! This week we’re discussing whether we’ll ever see 3% mortgage rates again, the Federal Reserve’s decision to pause rate hikes and a home that screams Victorian elegance.

The Fed pauses rate hikes

Money; Getty Images This week’s Federal Reserve meeting may have been one of the most anticipated ever. Most analysts were expecting a pause in the central bank’s rate-hiking policy, and they got it. But will the move provide relief to beleaguered borrowers grappling with high mortgage rates? In theory, sure. After all, headline inflation is cooling, with the Bureau of Labor Statistics reporting that consumer prices rose 4% year-over-year in May, the slowest annual increase in two years. On the other hand, core inflation, which excludes volatile prices from food and energy and is the Fed’s preferred measure of consumer prices, is still high (5.3%.) And it’s taking much longer to come down than headline inflation. An excellent article by Logan Mohtashami, lead analyst for Housing Wire, explains that there are several roadblocks keeping mortgage rates from moving lower. These include: The banking crisis earlier this year The debt ceiling resolution coming down to the last minute The lag in reporting lower shelter costs — rental and owner-occupied housing costs — one of the main components of core inflation A strong labor market and wage growth Mohtashami believes that rates are likely to stay on the higher side until the labor market weakens — that is, until jobless claims top 323,000 on a four-week moving average. Don’t get me wrong. This week’s rate pause is good news and shows that some progress has been made in the fight against high inflation. But there’s still a long road ahead, and Fed Chairman Jerome Powell remarked that more rate hikes will likely be necessary later this year. Consequently, we shouldn’t expect mortgage rates to drop significantly just yet.

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Speaking of mortgage rates — Is there an ‘ideal’ rate for homebuyers?

Getty images I recently wrote about how most would-be homebuyers are waiting for mortgage rates to drop before jumping into the market. The trend begs a question: How low do mortgage rates have to go to lure back potential buyers? According to a recent survey by Realtor.com and research company Censuswide, the answer is … quite a bit. About 75% of respondents said they’re waiting for rates to fall below 6%. And more than 11% said they would only feel comfortable buying if rates were between 3% and 3.25%. That’s more than three percentage points lower than Freddie Mac’s current average for a 30-year loan, and typical of the rates seen in 2020 and 2021. (Who can blame them? Those rates were pretty sweet.) But alas, “We don’t expect rates to return to the historic lows we saw during the pandemic,” said Hannah Jones, economic data analyst at Realtor.com, in a press release. Still, according to the survey, some buyers are adapting to the idea that rates over 6% are the new “normal.” More than a quarter of all potential buyers are willing to re-enter the market even if rates remain above 6%. “I expect that the longer rates remain above 6%, the larger this share of home shoppers will grow,” Danielle Hale, chief economist at Realtor.com, told me in emailed comments. Hale also points out that fewer buyers mean less competition, which is making homes stay on the market longer. That’s good news for buyers who ARE still actively shopping around. “Although costs may be higher, they likely have more time to make a decision they can feel confident in," she said. What does this mean for the housing market? It’s going to be slow — real slow — until rates come down (there are other factors at play, such as inventory and home prices, but those are topics for another day). Most experts think they’ll eventually settle in the 5% to 6% range, but there’s little telling when, exactly, that will happen.

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Listing of the week

Ollie Paterson A historic hideaway in Escondido Step into this home in the Old Historic District of Escondido, California and you’ll be transported to another world. Built in 1896, this Victorian home is known as the Arthur H. Beach House after its original owner. It has 3 bedrooms, 2.5 baths and sits on nearly half an acre of land (this is important). The home looks dainty and petite from the outside, but don’t be fooled. The inside has all the grandeur of the late 19th and early 20th century. From the original hardwood floors and light fixtures to the intricately designed Bradbury and Bradbury wallpaper, every inch of the home has been restored to its original glory. But don’t worry; there are plenty of modern touches, including air conditioning and solar panels. If the inside is a dream, the outside offers plenty of space for outdoor delights — think lawn games, a leisurely evening stroll or a good old-fashioned barbecue. The English-style garden features a central fountain framed by hedges, a gazebo that’s perfect for afternoon tea and a pergola that provides the ideal place to cozy up with some hot chocolate on a chilly morning. The 3,300-square-foot home, listed by Jeff Walker at Agents of Architecture, is listed at $2.25 million. That’s a big chunk of change to be sure, but here’s another perk: Since the Beach House is historically designated and covered under part of California’s Mills Act, whoever scoops it up can get a big tax break (between 40% to 60% in savings) by preserving the historic nature of the property. Ollie Paterson

‘Til next time, P.S. Have you seen a unique listing on social media I should feature in this newsletter? Or have a question about housing or mortgages you desperately want answered? Let me know on Twitter at @LeslieLCook or via email at leslie@money.com. P.P.S. Have a friend who loves real estate or is looking for a home of their own? Please forward them this email or send them to the Money Moves subscription page.

Money’s Essential Home Buying Resources: Spring 2023

On the hunt? Check out Money’s Mortgage Calculator, list of The Best Mortgage Lenders and look at the latest mortgage rates. Thinking of refinancing? Our list of The Best Mortgage Refinance CompaniesMortgage Refinance Calculator or these refi tips. Key question: How much house can I afford?

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