‘Magic Number’ Mortgage Rates to Thaw Housing
If mortgage rates can drop to the 5% level, Ken Shinoda from DoubleLine Capital believes this could significantly impact the US housing market, potentially prompting prices to decline. Shinoda noted in a recent analysis that this rate might serve as a “magic number,” aligning buyers and sellers in a way that clears the market.
Recent trends have made reaching this rate more plausible, especially with the 30-year mortgage rate sliding from nearly 8% in October, marking the first drop to these levels since 2007. As rates dipped to 6.67%, there was a resurgence in housing activity, with a notable increase in homeowners contacting real estate agents and growing buyer interest.
Shinoda’s belief in the potential price decline clashes with prevalent Wall Street projections, which generally suggest that home values move inversely to mortgage rates. Some forecasts anticipate existing property appreciation due to declining rates, contradicting Shinoda’s hypothesis.
Barbara Corcoran, a prominent figure from Shark Tank, has also advised against waiting for further rate drops, warning potential homebuyers about increased competition and higher home prices if they delay their purchase.
However, Shinoda highlights the oversimplification of the relationship between rates and home prices, emphasizing the pivotal role of housing supply. Despite rate increases in the past year, home prices didn’t drop due to a severe supply shortage, compounded by homeowners hesitant to sell and lose their sub-5% locked rates.
He sees the 5% rate as a tipping point for homeowners to re-enter the market, potentially alleviating supply constraints and keeping prices stable, if not lowering them. Lower rates could revive transactions and possibly spur new-home construction, ultimately impacting the housing market’s dynamics.
Despite these prospects, the trajectory of mortgage rates remains uncertain. Most analysts predict rates to linger in the 6%-7% range through 2024, casting doubt on Shinoda’s optimistic projections for a significant rate decline.
