The average interest rate for 30-year fixed-rate mortgages dropped to the lowest level since October last year on Thursday, amid market expectations for the Federal Reserve to lower the federal funds rate. This has stimulated some potential homebuyers’ enthusiasm, with the growth rate of home purchase applications reaching the highest in the past four years. Economists believe that the current real estate market in the United States is the most buyer-friendly market since 2008.
On Thursday, Freddie Mac reported an average 30-year fixed-rate of 6.35%, lower than the previous week’s 6.50%, and Mortgage News Daily (MND) recorded it at 6.27%, both hitting the lowest point since last October.
Market consensus on the Fed cutting interest rates in September is no longer disputed. According to Jiayi Xu, an economist at Realtor.com®, the disagreement this month is not about whether to cut rates but rather the extent of the rate cut. Most experts also affirm that there will likely be further rate cuts for the remainder of the year but differ on the magnitude and frequency of such cuts.
In Los Angeles County’s real estate market, there are 49.2% more sellers than buyers, with a median price of $906,000, up 0.8% year-on-year. In neighboring Riverside County, sellers outnumber buyers by 67.5%, with a median price of $576,000, a decrease of 0.8%. In Orange County’s Anaheim, there are 29.6% more sellers than buyers, with an average home price of $1.174 million, up by 0.8%.
All four counties in the Greater Los Angeles area are considered buyer’s markets. When the number of sellers exceeds buyers by 10% or more according to Redfin’s criteria, it is classified as a buyer’s market. Currently, the number of sellers in Southern California far surpasses potential buyers, providing buyers with more options and negotiating power.
Nationwide data from the MLS platform shows that up to July 25th, there were 1.946 million sellers compared to 1.427 million buyers, resulting in 519,000 more sellers than buyers. According to Redfin, this is the largest gap since 2013.
Asad Khan, a senior economist at Redfin, believes that the current housing market overall is the most buyer-friendly since the financial crisis of 2008. However, there are exceptions in certain urban areas, such as New York City, where sellers outnumber buyers by only 4.9%, indicating a balanced market. Some regions still lean towards being a seller’s market, like Newark, New Jersey, and Nassau County, New York.
The decrease in mortgage rates indicates an improvement in buyers’ purchasing power. Redfin estimates that the rate drop since midsummer has increased buyers’ affordability by over $20,000.
Andy Huang, a real estate and mortgage broker in the Chinese community of Arcadia, Los Angeles County, noted a visible increase in “For Sale” signs on the streets recently. He mentioned that in previous years, buyers had to continuously raise their bids to purchase a house, but the current scenario, while still competitive, is not as challenging as before.
However, Huang believes that the Los Angeles housing market is still relatively sluggish and will take time to pick up. He points out three reasons for this: firstly, it being a buyer’s market means that buyers expect further rate reductions despite the current mortgage rate decrease. Secondly, the market’s response to present rates may need more time as many are still in a wait-and-see mode. Lastly, he senses that buyers are more cautious now due to past high rates affecting investments, leading to a more prudent approach towards spending.
Huang suggests that while the rate cut eases repayment pressure for buyers, if the rate difference is not significant, buyers need not dwell too much on it. For instance, a 0.375% variance between rates of 6.5% and 6.125% will not translate to a substantial difference when spread over a 30-year repayment period.
He recommends that buyers make prompt decisions in the current buyer’s market, advising them to seize suitable properties and possibly refinance if rates continue to decline.
When choosing a mortgage lender or financial institution, Huang advises buyers to opt for stable loan options and be cautious of advertisements promoting extremely low rates. Such offers may omit additional fees, resulting in overall higher costs despite the seemingly low interest rate.