Is the Market Ready to Explode? Here’s What Will Light the Fire!
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Talking Points: How 5.5% is the Magic Mortgage Rate for Buyers and Sellers
- The Magic Number: 5.5%
- According to John Burns Research and Consulting (JBREC), 71% of homeowners who plan to purchase their next home with a mortgage won’t accept a rate above 5.5%. This is a critical number for agents to watch as it represents a fundamental threshold that influences homeowner behavior.
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- Consumer Perception of “Normal” Rates
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- The survey also revealed that 62% of consumers believe a historically normal mortgage rate is below 5.5%. This perception impacts their buying decisions, and it’s vital to align client expectations with the current market trends.
- Higher Rates = Limited Demand
- Only 13% of homeowners are willing to accept a mortgage rate between 6.5% and 6.99% for their next home purchase. Higher rates significantly reduce the pool of active buyers, making it essential for agents to educate clients on creative financing options that could lower their rates.
- Do you know how to advise buyers to get a 5.5% rate even when the market rate is higher? Refer to last week’s podcast, where we discussed three ways to achieve a lower rate!
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- The Lock-In Effect is Easing
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- While the lock-in effect (where homeowners hesitate to sell due to their low existing mortgage rates) is still strong, it’s beginning to weaken. This is why we’re seeing more listings come to market. As agents, staying ahead of this trend and preparing for a potential uptick in sales activity is vital.
- 5.5% as a Benchmark, Not a Barrier
- The 5.5% rate isn’t a hard limit but a valuable benchmark for forecasting homeowner behavior. Use this as a guideline when helping clients assess market opportunities, but remind them that individual circumstances might require flexibility.
- Remember that nearly 40% of home purchases this year were ALL CASH, so don’t assume that every buyer in your pipeline even cares about rates.
- What Happens If Rates Drop Below 6%?
- Forecasts suggest that a broader shift in the housing market may not occur until mortgage rates fall below 6%. Agents should monitor rate trends closely and inform clients of the potential advantages of waiting or taking action now based on personal needs.
- We have already seen when rates get anywhere near 6%, new mortgage applications rise almost immediately.
- Educating Clients on Creative Financing
- Now is the time to educate clients on ways to achieve a 5.5% or lower mortgage rate through strategies like rate buy-downs, adjustable-rate mortgages (ARMs), and paying discount points. Agents who proactively offer solutions can help clients move forward despite rate challenges.
- You should know what the best builder rates are in your market, for example. Some builders are subsidizing rates as low as 3% or 4%.
- Positioning Yourself as a Market Expert
- How many of your buyer prospects are actively looking for their next home right now? Are they going to open houses without you? Are they visiting new construction?
- How many contacts are you making to your database daily?
- How much time do you spend being proactive about your lead generation daily?
- Hold a home buyer seminar with a lender who can discuss rate buy downs, adjustable rate loans, and other ways to score a great rate. Do a Facebook Live or Zoom event this week!
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