US housing market: Sub-5% mortgage rates viewed as magic number

While the US housing market has been forced to adapt to higher mortgages rates – similarly to the UK – if they drop below 5% it’s thought the market will become extremely busy once again.

Ken Baris, chief executive of Berkshire Hathaway Home Services in Livingston, New Jersey, said: “I told my team, ‘the moment rates dip below 5% again, even if it’s 4.99%, cancel your vacation, because we’re going to have the hottest market we’ve had in years’.

“As rates go down, buying power increases significantly.”

The Federal Reserve held the interest rate last week, which brought the Freddie Mac fixed-rate 30-year mortgage from 6.95% to 7% this week.

Similarly to the UK, the national bank rate in the US escalated significantly throughout 2022, from 0-0.25% at the start of the year to 4.25-4.50% by the end.

However the US Federal Reserve Interest rate has been held at 5.25-5.50% since May 2023.

Previously the key number was deemed to be 5.5%. A survey by John Burns Research & Consulting said a quarter of respondents they were not willing to accept a mortgage rate below that figure in September.

The survey’s authors wrote: “Consumers are stuck on low mortgage rates … and still believe a sub-5% mortgage rate is ‘normal’… consumers aren’t just stuck in the past; many told us they simply couldn’t afford the mortgage payment a rate above 5.5% would entail.”

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