A new survey by John Burns Research & Consulting found that 5.5% is the “magic mortgage rate.”

By magic, they mean a threshold for a home buyer before they balk at buying.

Put another way, if mortgage rates were 5.5% or lower, most potential home buyers would proceed with the transaction.

At last glance, the 30-year average rate was 6.27%, according to Freddie Mac.

This means we are close enough that mortgage rates are no longer a barrier to new home buyers.

5.5% mortgage rates are within reach

current mortgage rates

As mentioned, the 30-year average is currently around 6.25%. Although this may sound high, rates have declined for five consecutive weeks. Freddie Mac,

You can thank the short-lived banking crisis and some favorable economic reports (with respect to inflation) for that.

Still, they’re a far cry from the 2-3% rates on offer back in 2020 and 2021. But because it’s been a while, rates are up only 1% from a year ago.

The 30-year fixed average at this point in 2022 was 5.00%, not a huge jump. And rates rose to more than 7% in October.

So as it stands Mortgage Rates Aren’t Terrible, And the older generation will argue that they are historically inferior. Or point you to mortgage rates in the 1980s.

Despite all this, it appears that today’s home buyer is fine with a 5.5% mortgage rate. But anything beyond that can be a deal breaker.

71% would not buy a home if the mortgage rate was above 5.5%.

30 Years Definitive History

Now on to that survey. The New Home Trends Institute team at John Burns Research & Consulting Survey Over 1,300 landlords and renters in late February and early March.

They found that 71% of potential home buyers who plan to use a mortgage “say they are unwilling to accept a mortgage rate above 5.5%.”

In other words, there is a limit of 5.5%. Anything beyond that and they won’t budge.

This may be because 62% of these consumers indicated that “the typical mortgage rate has historically been below 5.5%.”

If you only consider mortgage rates from 2010, they’re about right, as seen in the chart above. Fred, Earlier, rates between 6-8% were ideal.

Some 55% of these respondents also believe it is a bad time to buy a home, while only 22% believe it is a good time to buy.

So if the mortgage rate piece of the equation isn’t favorable, they probably won’t move forward.

This speaks of house prices being on the higher side despite some headwinds in the last one year.

and the continuing dearth of quality existing inventory, which is proving to be a boon for home builders.

Home builders are buying mortgage rates below 5% to make deals work

The good news is that many of the biggest home builders are lowering mortgage rates to pencil in deals.

And they’re going beyond 5.5%, often pushing rates below 5% for their customers.

They have been able to get away with it for a number of reasons. There is a lack of competition from the resale market (due to the mortgage rate lock-in effect).

Simply put, most of the existing landlords are not selling because they want to retain their 2-3% interest rate.

This has allowed new home builders not to raise their prices or at least not reduce them.

Additionally, construction costs have fallen, and lumber prices have plummeted.

As a result, builders are “paying as much as 6.0% of the mortgage amount” to buy down the mortgage rate.

For the record, existing landlords can also accomplish this through seller concessions that can be used for discount points.

This allows home buyers to qualify for a lower interest rate and lower their monthly housing payment. This can make deals more favorable.

And mortgage lenders may also offer a temporary buyout that lowers mortgage rates for the first 1-2 years.

But none of this changes the fact that home prices remain high.


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