The other day I noticed that mortgage rates were being advertised at some really low levels.
Many quotes in the mortgage rate table on my own site were in the mid-5s.
That got me curious how low rates could be with a really favorable loan scenario, such as a 760+ FICO, 20% down home purchase, owner-occupied, single-family residence.
So I headed over to Zillow’s Mortgage Marketplace to see what I could come up with.
Knowing that VA loan rates are typically the lowest, I threw that in too and lo and behold, saw 30-year fixed rates that began with a “4.”
I threw the screenshot up on Twitter and simply said, “Guys, it’s not a mortgage rate story anymore.”
What Did I Mean?
The tweet got a good amount of traction, likely because of those very low 4.875% 30-year fixed rate quotes in the screenshot.
And some felt it was deceiving to post rates like that, which might not be reflective of the entire borrower universe at the moment.
After all, not everyone has a 760 FICO score or the ability to put down 20%, nor might they be eligible for a VA loan.
I also threw in two discount points, since most of the low rates advertised today require the borrower to pay some money at closing in order to obtain a “below-market” rate.
In reality, you can put nothing down on a VA loan and get the same pricing since there aren’t mortgage pricing adjustments on such loans. The same goes for having a lower FICO score.
So the loan scenario wasn’t as crazy hard to qualify for as it first appeared. And when I re-ran the scenario today you could actually get a rate of 4.75% with just one discount point.
But that wasn’t even the point I was trying to make. It wasn’t about a 4.875% rate vs. 4.75% rate, or a 5.25% rate. Or any specific rate at all.
It was that the high mortgage rate story we’ve been fixated on for the past two hours is over.
The housing market today is no longer being driven by the high rate story. We exhausted it, first being caught off guard by how quickly rates increased in early 2022.
Then wondering how high they might go, if they’d hit a new 21st century high (they didn’t!).
That was followed by pondering when they’d begin to fall again (they peaked last October and have dropped quite a bit since then).
And so it’s not about rates anymore.
If It’s Not Rates, What Is It Now?
That brings me to my point. The housing market is now at a crossroads where high mortgage rates are no longer the focus.
Most prospective home buyers today will see that mortgage rates have come down significantly.
The 30-year fixed was basically averaging 8% just before last Halloween, and today is closer to 6.25%.
As I illustrated with some mortgage rate shopping, it’s also possible to bring down that rate to the high 4% range, or the very low 5s, even for conforming loans backed by Fannie and Freddie.
This means anyone who has been pondering a home purchase during the past couple years is no longer obsessed with rates.
Instead, they’re likely considering other factors, such as home prices, the cost of insurance, their job stability, the wider economy, and even the election.
If they were looking at homes when rates were closer to 8%, they’re surely still looking with rates approaching 5% (they could be there soon without all the perfect FICO scores and discount points).
But if they’re no longer looking to buy, or they’re having doubts, it’s not because of high mortgage rates anymore. Those are no longer to blame.
Perhaps now they’re worried that asking prices are too high and could fall. Maybe they’re concerned that the economy is on shaky ground and a recession is coming.
After all, there’s an expectation that the Fed is going to cut its own fed funds rate 200 basis points over the next year.
That doesn’t exactly exude consumer confidence.
We Finally Get to Find Out!
What I’m most excited about now that high mortgage rates are old news is that we finally get to “find out.”
By that, I mean we get to see how this housing market performs in a period of slowing economic growth, with Fed rate cuts and a possible recession on the table.
Remember, the Fed wouldn’t be cutting rates if they weren’t worried about rising unemployment and a softening economy.
In other words, we’re going to see what this housing market is really made of. As I’ve said many times before, there’s no inverse relationship between mortgage rates and home prices.
One does not go up if the other goes down. And vice versa. We already saw home prices continue to rise as mortgage rates jumped from 3% to 8%.
So is it possible that both mortgage rates and home prices could fall in tandem? Sure. Granted nominal home price declines aren’t common to begin with.
But we’re finally going to put it to the test. And I’m looking forward to it.
(photo: Brittany Stevens)
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
