Understanding the Impact of Mortgage Rates on Real Estate Market in 2024

The average 30-year fixed-rate mortgage (FRM) has dropped to 6.87% in the week ending June 21, 2024, while the average 15-year FRM rate also decreased to 6.13%. This decline in rates is expected to continue as the Federal Reserve demonstrates control over inflation and job growth.

Property sellers are feeling the impact of higher FRM rates, as current asking prices are not aligning with the borrowing capacity of buyers. This mismatch is forcing sellers to either reduce prices or exit the market altogether. Buyers, on the other hand, are faced with the choice of either lowering their standard of living to afford a home in a lower price tier or waiting for prices to drop to match their purchasing power.

As buyers become more cautious about making overpriced purchases at high-interest rates, many are choosing to wait on the sidelines. This shift in buyer behavior is leading to an increase in for-sale inventories, which is putting pressure on sellers to reduce prices to attract buyers.

The setting of FRM rates is closely tied to the treasury bond market, with the 30-year FRM rate moving in tandem with the 10-year Treasury Note rate. The spread between these rates is currently high, indicating that lenders are padding their risk premiums in anticipation of future rate increases and potential foreclosures due to defaults.

Overall, the downward trend in FRM rates is expected to continue through 2025, followed by a long-term upward trend. This shift in rates is reshaping the real estate market dynamics, with both buyers and sellers needing to adjust their strategies to navigate the changing landscape.