On Feb. 26, 30-year mortgage rates did something they hadn’t done since September 2022, according to Freddie Mac: They fell below 6%.
Elevated rates have been a sore spot for prospective buyers, especially given that home prices have been so high. Seeing mortgage rates dip under the 6% mark was a breath of fresh air for frustrated buyers who have been itching to enter the market.
Unfortunately, those sub-6% rates were short-lived. As of March 5, the average 30-year mortgage rate was already back up to 6%. And if tensions overseas persist, we could see rates continue to creep upward, despite having largely been on a downward trajectory since the start of the year.
But the reality is that sub-6% rates aren’t enough to save the housing market right now anyway. There are a number of confounding factors that are creating a market where homes are expensive to buy, inventory is down, and sellers can’t get offers.
Elevated Mortgage Rates Aren’t the Only Sticking Point
The week ending Feb. 27 saw mortgage applications rise 11% from the week prior, according to the Mortgage Bankers Association. But that uptick is most likely temporary.
Adie Kriegstein, founder of the NYC Experience Team at Compass in New York City, has been selling real estate for 20 years and counting. According to her, higher mortgage rates aren’t the only issue with today’s housing market.
“A move from, say, 6.8% to 5.8% is mathematically helpful. But psychologically and practically, it’s not transformative,” Kriegstein says. “It doesn’t suddenly make housing cheap, nor does it undo the affordability shock buyers have absorbed over the past several years.”
As Kriegstein explains, much of the U.S. never experienced a meaningful price correction after the COVID-19 boom.
“Instead, values either plateaued or continued climbing,” Kriegstein says. “That means today’s buyers are often paying near-peak pricing layered on top of elevated borrowing costs and rising monthly expenses.”
In January, the median existing-home sale price rose to $396,800, per the National Association of Realtors. Not only is that a 0.9% increase from a year prior, but it also marks the 31st consecutive month of annual home price gains.
[Read: Best Mortgage Lenders]
The Big Picture Still Doesn’t Look Good
Another reason sub-6% mortgage rates won’t save the housing market? Buyers are becoming increasingly focused on total monthly costs, says Kriegstein.
“Property taxes are rising. HOA and maintenance charges continue to inch upward. Insurance premiums and utilities are climbing. The result is that buyers’ true bottom line has shifted significantly, and they are scrutinizing monthly carrying costs more closely than ever before,” she explains.
Steve Kaminski, head of residential lending at TD Bank, agrees.
“To put it in perspective, a 1 (percentage point) drop in rates from 6.5% to 5.5% would save a $425,000 borrower about $200 per month, which is helpful but not game-changing for most buyers,” he says.
Broad economic uncertainty isn’t helping matters either, says Kriegstein.
“Volatile equity markets and job security concerns weigh heavily on buyer psychology,” she explains. “Housing decisions are long-term commitments. And buyers want confidence in their income trajectory and overall financial stability before making that leap. A rate that begins with a ‘5’ doesn’t override uncertainty.”
[Read: Best Mortgage Refinance Lenders.]
Housing Supply Is a Barrier, Too
High borrowing costs and home prices aren’t the only problems with today’s housing market. It’s also sorely lacking inventory.
As of January, there was only a 3.7-month supply of homes for sale, according to the NAR. That’s well below the five- to six-month supply that’s generally needed to create a balanced real estate market.
“The so-called lock-in effect is real,” says Kriegstein. “Many homeowners refinanced at sub-4% rates and are holding onto those mortgages for as long as possible.”
Kriegstein also says that many homeowners today are opting to make the best of their current homes by renovating or expanding rather than trying to sell for top dollar.
“What they would buy next is just as expensive and financed at a higher rate,” she says. “Without a compelling next chapter, many homeowners are opting to stay put.”
But that, she says, is keeping “a significant amount of potential resale inventory off the market.”
Kaminski says housing inventory is starting to pick up a bit.
“We’ve seen some improvement with increased construction,” he explains. “But high prices and the lock-in effect continue to keep many homeowners on the sidelines.”
It’s a Waiting Game At This Point
Kaminski says it’s important for frustrated buyers and sellers to realize that today’s housing market conditions won’t last forever. But in his mind, the one thing that’s apt to truly make a difference is time.
“Inventory has increased with some new construction, and additional listings are creating more homebuyer choices,” he says. “The more time that passes, the more things will change.”
Still, it could take a long time for rates to drop to a low enough level to motivate both buyers and sellers.
“Rates aren’t expected to get lower anytime soon without a material global or macroeconomic issue, so prices must come down at some level to support affordability,” Kaminski explains.
Kaminski also says different policy changes in the works “are not expected to have a material impact.”
As for those sub-6% rates, the situation could shift in the coming months, lowering rates to the 5% range that some people, at this point, might consider the sweet spot.
But all told, Kriegstein doesn’t have a lot of faith that slightly lower rates will make a big difference.
“Sub-6% rates may help sentiment,” she says. “But sentiment alone won’t reopen the housing market.”
More from U.S. News
Can You Refinance a Mortgage in Forbearance?
How to Refinance a Rental Property
What You Gain From Buying a Home That You Never Plan to Pay Off
The Iran Conflict Ended Sub-6% Mortgage Rates. But That’s Not the Real Reason Many Can’t Buy originally appeared on usnews.com