I noticed the other day that mortgage rates are being advertised at very low levels.
Many of the rates in the mortgage rate chart on my own site were in the mid-50s.
This made me curious about how much lower rates would be with a really favorable loan scenario, like a 760+ FICO, a 20% down payment home, or an owner-owned single family home.
So I headed to Zillow’s mortgage marketplace to see what I could find.
Knowing that VA loan rates are typically the lowest, I added that in as well and suddenly, I saw 30-year fixed rates starting with a “4”.
I have taken a screenshot of it. twitter He simply said, “Guys, this is no longer a story about mortgage rates.”
What did you mean?
The tweet got a good amount of traction, likely due to those very low 4.875% 30-year fixed rates in the screenshot.
Some felt that publishing interest rates in this way was misleading, and may not reflect the entire borrowing community at the moment.
After all, not everyone has a FICO score of 760 or the ability to put down 20%, and they may not qualify for a VA loan.
I also added two points for discount, since most of the low rates advertised today require the borrower to put up some money at closing in order to get the “below market” rate.
In fact, you can pay any amount upfront for a VA loan and get the same rate since there are no mortgage rate adjustments on such loans. The same goes for getting a lower FICO score.
So the loan scenario wasn’t as difficult as it initially seemed. When I re-ran the scenario today, I could actually get a 4.75% rate with just one discount point.
But that wasn’t the goal I was trying to reach. It wasn’t about 4.875% versus 4.75%, or 5.25%. Or any specific rate at all.
And with that, the mortgage rate hike story we’ve been focusing on for the past two hours is over.
Today’s housing market is no longer driven by the high-interest-rate story. We’ve exhausted that story, having first been surprised by the speed with which interest rates rose in early 2022.
Then they wonder how high they could go, if they ever reach the highest level in the 21st century (which they didn’t!).
This was followed by the question of when prices would start falling again (they peaked last October and have fallen significantly since then).
So it’s not about the prices anymore.
If it’s not about prices, what is it now?
Which brings me to my point. The housing market is now at a crossroads where high mortgage rates are no longer the focus.
Most potential home buyers today will notice that mortgage rates have dropped dramatically.
The average fixed yield on 30-year Treasuries was 8% before last Halloween, and today it is closer to 6.25%.
And as I demonstrated through some mortgage rate shopping, it’s also possible to get that rate down to the high 4% range, or the very low 5% range, even for conforming loans backed by Fannie Mae and Freddie Mac.
This means that anyone who has been thinking about buying a home in the past two years is no longer obsessed with prices.
Instead, they are likely taking into account other factors, such as housing prices, the cost of insurance, the stability of their jobs, the broader economy, and even elections.
If they were looking for homes when prices were closer to 8%, they’re certainly still looking at prices closer to 5% (they may get there sooner without all the perfect FICO scores and discount points).
But if they no longer want to buy, or have doubts, it’s not because mortgage rates are high anymore.
They may now be concerned that demand prices are too high and may fall. They may be concerned that the economy is on shaky ground and that a recession is coming.
After all, there are expectations that the Federal Reserve will cut the federal funds rate by 200 basis points over the next year.
This does not reflect consumer confidence at all.
We finally figured it out!
What excites me most now that high mortgage rates are old news is that we will finally be able to “discover” the truth.
This means that we will be able to see the housing market perform during a period of slowing economic growth, with interest rate cuts by the Federal Reserve and the possibility of an economic recession.
Remember, the Fed wouldn’t cut interest rates if it weren’t concerned about high unemployment and a slowing economy.
In other words, we will see what the housing market actually consists of. As I have said many times before, there is no inverse relationship between mortgage rates and home prices.
One doesn’t go up if the other goes down. And vice versa. We’ve already seen housing prices continue to rise with mortgage rates going from 3% to 8%.
Is it possible, then, for mortgage rates and house prices to fall at the same time? Sure. Falling nominal house prices are not common in the first place.
But we will finally test it, and I look forward to it.
(image: Brittany Stevens)
Prior to creating this site, I worked as an account manager for a wholesale mortgage lender in Los Angeles. My experience working in the early 2000s inspired me to start writing about mortgages 18 years ago to help potential (and current) home buyers better navigate the home loan process. Follow me on Twitter for the latest news.
