How Low Must Mortgage Rates Go to Lure Back Buyers?

The 30-year, fixed-rate mortgage rate fell for the fifth consecutive week to 6.27%, and according to Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors (NAR), cooler inflation could soon send rates below 6%. Mortgage applications to purchase a home rose 8% last week compared with the previous week, and if rates were to fall to 6%, 3.1 million more households would once again be able to afford to buy a median-priced home.

Still, budget-conscious buyers prefer to wait it out. A new survey by John Burns Real Estate Consulting revealed that 71% of prospective homebuyers who plan to purchase their next home with a mortgage are not willing to accept a mortgage rate above 5.5%, NAR reports.

This week’s drop in mortgage rates coincided with news that inflation decreased last month. “These trends, coupled with tight labor conditions, are creating increased optimism among prospective home buyers as the housing market hits its peak in the spring and summer,” says Sam Khater, Freddie Mac’s chief economist.

The consumer price inflation index was at 5% in March, marking a vast improvement from 9% last summer and 8% in the fall. NAR Chief Economist Lawrence Yun says that 2% is the ideal inflation rate—but that may still be a year away. “This directional improvement is a clear signal to the Fed to change its tightening monetary policy, especially considering that many regional banks are still on the edge of further risk if interest rates blow up,” he says.

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