Recent findings show that mortgage interest rates have been consistently decreasing. The rates have dropped from a high point earlier this year, close to 8%, to below 6.5%, a decrease of over one percentage point. What does this signal mean? Is the “lock-in effect” about to be unlocked? There is a possibility. This time, let’s explore together which regions are more likely to unlock early, allowing homeowners to sell and buyers to enter the market.
In Redfin’s latest report, the median monthly mortgage payment in the United States was $2,587 as of August 18, the lowest level since February, with a decrease of 0.1% compared to the same period last year. Although the decrease is small, it marks the first monthly payment decrease in four years!
The average weekly mortgage interest rate is currently at its lowest point in 15 months, slightly below 6.5%. This recent rare low has encouraged many homebuyers to enter the market. While I didn’t update real estate videos last week, I have previously written that experts recommend potential homebuyers not to wait for Federal Reserve rate cuts and to enter the market promptly.
Experts believe that if homebuyers wait for the Federal Reserve to start lowering interest rates and assume a one percentage point decrease in mortgage rates, more people will rush into the market, leading to higher price increases. So, buying a house may not be as favorable then as it is now. We have seen a difference in transaction volumes between the high rates at the beginning of the year and the relatively low rates now.
Realtor.com’s report shows that the year-over-year home sales volume in July decreased by 2.5%, but the month-over-month growth was 1.3%, indicating a resurgence. Additionally, the number of homes for sale in the market reached the highest level in five years, a rare occurrence in recent times.
Redfin’s real-time market report also indicates that, as of the week ending on August 18, the demand index for homebuyers increased by 4% compared to a month ago, and the proportion of online searches for “homes for sale” rose by 8% compared to the previous quarter. This suggests that more people are now interested in entering the housing market instead of giving up on buying a home.
Since mortgage rates rose from 3% to over 7%, the real estate market has been locked in due to the “lock-in effect.” Despite rising property prices, sales volume has remained sluggish. Now that rates have unexpectedly decreased and may continue to drop with rate cuts, the lock-in effect is likely to gradually lift. Some regions even have the potential to show signs of unlocking earlier, as homeowners in certain areas have a higher proportion of high-rate mortgages.
Now that rates have finally dropped below 6.5%, areas where a higher percentage of homeowners have mortgages above 6.5% are more likely to sell or refinance to lower rates. Which cities have a higher proportion of high-rate mortgages?
According to Realtor.com’s statistics, Naples, Florida ranks first with an estimated 15.2% of mortgages above 6.5%, compared to the national average of 5.3%. For these homeowners in Naples with high rates, it is more likely to attract them to sell their homes or apply for refinancing.
Data analysts believe that many of these homeowners with high rates bought their homes recently, contributing to substantial price increases in the local market. For example, house prices in Naples increased by 69% from 2020 to 2023, with a median listing price of $770,000 in July, which is not cheap. However, since these homeowners are likely recent buyers, the probability of them moving again in the short term is low, but the likelihood of refinancing is higher.
Florida has two other cities on the list with potential for early unlocking: Cape Coral, ranked fourth, and Miami, ranked fifth. All three cities are located in South Florida, making Florida the only state with three cities on the list.
Cape Coral, also known as Cape Coral, has a proportion of 12.4% with rates above 6.5% and a median listing price of nearly $450,000; Miami has 11.7% of rates above 6.5% and a median listing price of $535,000. So, for those looking to move to Florida, the South Florida region offers options to find a new home.
The second-ranking city on the list is St. Louis, Missouri, with 13.9% of rates above 6.5% and a median listing price of $313,900, making it the cheapest city among the list.
Myrtle Beach, South Carolina, ranks third with a rate of 13.4% mortgages above 6.5% and a median listing price of nearly $340,000. Following the fourth and fifth cities that were mentioned earlier, we move on to the sixth city, Albuquerque, New Mexico, with a proportion of 11.6% above 6.5% and a median listing price of around $420,000.
Kansas City, Missouri; Fort Wayne, Indiana; and Oklahoma City, Oklahoma, also have rates of over 10% above 6.5%, with median listing prices ranging from $320,000 to $430,000.
These cities have been popular during the pandemic, with a continuous influx of population. However, as rates increased, some missed the opportunity to move. Although they didn’t benefit from lower rates, property values rose slightly during this period.
Looking ahead to September, on the days of September 17 and 18, the Federal Open Market Committee will hold a meeting that will reveal the extent of rate cuts. The impact on mortgage loans will gradually become clearer. It is widely believed that interest rates will adjust downwards. However, the magnitude of the reduction and the speed of adjustment make it hard to predict.
If you are an affluent homebuyer, you may now become more interested. Let’s take a look at some luxury housing markets that have seen significant price reductions. Due to the effects of high interest rates and economic instability, some luxury markets, such as high-end beachfront areas that attract buyers, are experiencing significant impacts.
Once again, Florida has made it onto the list, with the neighboring cities of Miami, Fort Lauderdale, and Pompano Beach on the southeast coast. The median listing price of luxury homes in these three cities decreased by 22% in June this year, reaching $2.5 million. Additionally, the days on the market increased by 5 days, and online searches for local luxury homes decreased by 44%.
A real estate broker in Miami recounted how a client in the summer of 2022 was interested in buying a top-floor apartment when the U.S. housing market was price adjusting from the peak of the pandemic. Although they found a suitable apartment and negotiated a price with the seller, the buyer ultimately decided to postpone the purchase.
Two years later, with the same buyer and seller, the transaction was finally completed, with a 15% reduction from the initial price! So, if you are a luxury homebuyer, now might be a good time to make a move.
The second-ranking city with the largest price reduction is once again in Florida, Naples to Marco Island area. The median listing price of luxury homes in the second quarter decreased by 18%, reaching $4 million, with an 11% decrease in online searches for luxury homes during the same period. Local brokers advise that the frenzy of the pandemic has passed, suggesting that patient buyers may find well-priced luxury homes.
The third-ranking city with price reductions is Honolulu, Hawaii, where the median listing price of luxury homes decreased by nearly 10% to $2.34 million. In June, the median days on the market for luxury homes decreased by 11 days compared to the same period last year, while online searches for luxury homes decreased by 31% during the same period.
A real estate agent in Honolulu noted that those interested in purchasing luxury homes in Honolulu should pay attention to top-tier properties owned by Japanese sellers. As the Japanese Yen weakens, some Japanese homeowners may choose to sell their properties and convert funds back to Yen, which could be an extra bonus for sellers.
Lastly, it’s important to note that while we discussed many Florida real estate markets, if you are interested in Florida properties, pay special attention to the Homeowners Association (HOA) fees, which have increased significantly compared to last year. Tampa, Orlando, and Fort Lauderdale have seen increases of 16% to 17%. This is due to frequent natural disasters causing a surge in home insurance costs, along with new safety inspection requirements for condominium buildings, leading to a substantial rise in management costs.
The rising management fees have led to price decreases in condo sales. Jacksonville’s house prices decreased by 7% compared to a year ago, the largest drop among metropolitan areas analyzed by Redfin. Tampa also saw a 5% decrease. Additionally, in California, San Jose and Sacramento have seen fee increases of 9% and 13%, respectively, leading to decreases in condo prices as well. If you are interested in buying a condo, this might also be an opportunity.