The downward shift in mortgage rates may be good news for homebuyers, experts say, but the housing market remains turbulent nonetheless.
Though rates are lower than what they were a few months ago, they’re still elevated, said Charlie Dougherty, an economist at Wells Fargo. High mortgage rates are just one of many challenges facing homebuyers in recent years, he said, in addition to high prices and a tight supply of real estate—despite high demand.
“It’s a supply and demand story,” Dougherty said. “We have strong underlying demand—very low supply. And so that’s one reason why home prices are likely to continue to go up and keep the affordability environment unfavorable. That’s why I say, it’s not a particularly rosy situation for buyers.”
Overall demand is nevertheless strong, Dougherty said. There’s pent-up demand among older millennials who have weathered recessions, he said, and many younger millennials are getting married or having kids—life events that typically coincide with entry into the housing market.
“So the sheer volume of these folks moving to the housing market is creating a big pool of potential buyers—who are contending with some of the worst affordability conditions that we’ve seen since the early 1980s,” he said.
The fact that the housing market has become so much less affordable is perhaps homebuyers’ biggest challenge, Dougherty said. Prices have gone up by over 40% in the past three years, and the Federal Reserve has tightened monetary policy to tamp down inflation, which means higher interest rates.
Mortgage rates have experienced a “sharp and rapid” increase, Dougherty said, going from roughly 3% in 2021 to almost 8% in October 2023. Current mortgage rates for a 30-year term have dipped, hovering at about 6.75%, he said.
Though that number is still higher than recent norms, it’s not all gloomy. The outlook is certainly better than it was in fall 2023, Dougherty said, and lower mortgage rates will help homebuyers have lower monthly payments, as well as qualify for a higher-priced home.
“If you’re a buyer looking to buy a home in Las Vegas, now is the time to get out there and buy one,” said Merri Perry, president of Las Vegas Realtors. “Because you can negotiate right now closing costs on warranties, repairs—even reducing the price.”
Already buyers nationally are “jumping at the chance” to secure a lower mortgage rate, Dougherty said, pointing to the fact that mortgage applications have trended higher over the past two or three months.
“If mortgage rates continue to descend gradually, as we’re anticipating, then that’s certainly going to provide a boost for the housing market in general,” he said. “So it’s really encouraging to see, because the housing market has been really hit hard by higher interest rates, and now lower mortgage rates look like [they’re] breathing some new life into housing activity.”
Another major issue facing the real estate market is a tight housing supply. Buyers who are seeking to purchase a home are hard-pressed to even find that home, Dougherty said, which also impacts high home prices.
“It’s unlikely that you’re going to see a big increase in inventory and very likely you’re going to see pretty solid home-price appreciation,” he said. “Which is good, if you’re a homeowner. But if you’re trying to purchase a home, the affordability conditions are likely to remain pretty strained, I would say.”
Las Vegas is not immune, and low inventory is a “major issue” in the region, Perry said.
A lot of homebuyers may be “waiting and waiting and waiting” for interest rates to go down, Perry said, not realizing that once they do, the market will become much more competitive, with several prospective buyers for each home.
“Get out there,” she said. “Buy the home now, because when the interest rates go back down again, which I predict they will, we’ll be in a frenzy.”
Even as mortgage rates remain relatively high, homes right now are “just sitting there,” and buyers bold enough to brave the market will have more leveraging power than when the mortgage rate is at its lowest, she said.
“Don’t marry the interest rate,” Perry said, “marry the home.”