Borrowers Clash On How Far Rates Need To Fall Before They’re ‘Golden’



This report was originally published on August 19, 2024, exclusively for subscribers of Intel, the data and research arm of Inman. Subscribe to Inman Intel for a deeper analysis of the business of real estate.

This month, mortgage rates plunged below the 6.5 percent mark — down significantly from a recent peak of 7.5 percent in April.

By late August, it was hovering around 6.46 percent, yet it wasn’t enough.

Consumers say they need rates to fall significantly lower than that before they’ll be willing to buy a home, according to a July survey of 3,000 working U.S. adults conducted by Inman Intel and Dig Insights. 

And even once first-time buyers rejoin the fold, they are likely to face the same problem that plagued the housing market in the early pandemic homebuying frenzy: little new inventory to replace the houses that get scooped up. 

For this report, Intel analyzed the responses of this survey, which included a group of more than 2,000 adults from across the country who said they were unlikely to buy a home in the next year.

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Among other topics, Intel asked them how low rates would need to fall before they would seriously reconsider — an attempt to find a so-called “golden rate” that would spur renewed activity in home sales.

  • Results from the Inman-Dig Insights consumer survey in July suggest that if rates fell from their recent 7 percent levels down to 5.5 percent, it could provide a meaningful boost to home sales.
  • And if rates fell as low as 5.0 percent, the dam might break and release even more once-reluctant homebuyers onto the market.

But this emerging picture also hides some complex layers beneath the surface. 

Instead of one clear number, the rate targets that emerged were quite different for renters than they were for homeowners. And coupled with the latest rate forecasts, these dueling dynamics could determine the complexion of the housing market not just for months, but potentially years.

Read Intel’s findings in the full report.

The big picture

High mortgage rates remain a serious obstacle preventing consumers from entering the home market.

First, the top-level findings:

  • Of the working adults who said they were “unlikely” to buy a home in the next 12 months, 1 in 10 said they would seriously consider changing their mind if mortgage rates fell as low as 5.5 percent
  • But that share doubles to 1 in 5 in a scenario where rates were to fall to 5.0 percent.

Although mortgage rates can be volatile, forecasts suggest that rates that low may still be years away. 

  • The Mortgage Bankers Association, for example, projects that rates are on track to hit 5.9 percent only by the fourth quarter of 2025, and may stay in that range through the following year as well. 

These results should be taken with a few grains of salt.

For one thing, all of the so-called “unlikely buyers” that Intel surveyed were, by their own admission, not in the market for a home at this time. This means that some of their responses are merely hypothetical, not the result of research and kitchen-table math.

After sitting down with their budget and looking at home prices and monthly payments, it’s plausible that some respondents might give a different response than they provided to the survey.

Still, some clear consumer attitudes emerged in the survey data — with implications for what effect a lower-rate environment might have on transaction volume and buyer-seller dynamics in the years to come.

Back to the future?

Intel’s consumer survey results also illuminate a potential roadmap for the future dynamics between buyers and sellers as rates continue to descend.

Predictably, the survey found that renters are more responsive to small movements in mortgage rates. Current homeowners, on the other hand, need to see bigger declines to nudge them off the sidelines.

Intel tried to quantify just how big the gap was, and where the two groups might end up converging.

  • If mortgage rates were to fall a bit further to 6.0 percent — nearly 2 points below their high point in October — it would persuade nearly 9 percent of reluctant-to-buy renters to change course and consider entering the home market.
  • Less than half as big a share of reluctant buyers who already own a home would respond the same way. Only 4 percent of this group would show interest in the housing market, given the same 6.0 percent rate assumption.

This dynamic is not hard to explain. The so-called “rate lock-in” effect has been widely discussed throughout the industry, and examined in depth by Intel before.

The vast majority of homeowners fall into one of two categories: they either have no debt on their home, or their current home loan has a much lower rate than they could find on the market any time soon.

With enough time, churn and rate cuts, this dynamic could eventually balance out.

But Intel survey results suggest that it will likely be prevalent even if rates fall a lot more than they’re currently expected to over the next two years.

  • If mortgage rates fell below 5.0 percent, it would convince 25 percent of renters to seriously reconsider their reluctance to buy in the next 12 months. 
  • But sub-5-percent rates would only convince 16 percent of homeowners who are reluctant to buy in the next year to reconsider. 

Ultimately, rates in the 5 percent range — and especially the lower fives — could be a sweet spot that unlocks a significant amount of new buyers and new housing inventory.

But even in that range, the demand from buyers could outpace the supply of existing homes hitting the MLS. It’s a dynamic that could bring back seller’s market dynamics throughout much of the country as more buyers compete for each available listing. 

What might it take to avoid this kind of imbalanced buyer frenzy? More new housing construction could be part of the puzzle. But if builders can’t keep up, rates might have to fall to 4 percent or lower before renters and homeowners warm to the housing market at similar rates, Intel survey results suggest.

And that’s not likely to happen any time soon.

About the Inman-Dig Insights Consumer Survey

The Inman-Dig Insights consumer survey was conducted from July 5 through July 7 to gauge the opinions and behaviors of Americans related to homebuying. 

The survey sampled a diverse group of 3,000 American adults, ranging in age from 24 to 65 and employed either full-time or part-time. The participants were selected to produce a broadly representative breakdown by age, gender and region.

Statistical rigor was maintained throughout the study, and the results should be largely representative of attitudes held by U.S. adults with full- or part-time jobs. Both Inman and Dig Insights are majority-owned by Toronto-based Beringer Capital.

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