Housing News

More Homebuyers Are Accepting Today’s Mortgage Rates. Here’s What Changed

For the past few years, many would-be homebuyers have been sitting on the sidelines, hoping mortgage interest rates would fall by enough to make buying a home more affordable.

Increasingly, they’re deciding they don’t want to wait any longer.

Even with mortgage rates hovering in the mid-6% range, buyers are continuing to shop for homes. The number of homes for sale is slowly improving and the market is becoming a bit easier to navigate than it was just a few years ago.

“Consumers have accepted mortgage rates above 6% as the new normal,” wrote New American Funding Principal Analyst Ryan Schoen in a new NAF Insights report.

For buyers who spent the past few years waiting for mortgage rates to return to the unusually low levels seen during the pandemic, that represents a significant shift. Those sub-3% rates were the product of extraordinary economic conditions, such as the pandemic, rather than the norm.

Instead of trying to time the market, more homebuyers are adjusting their expectations and making plans based on today's borrowing costs.

Homebuyers are no longer waiting for rates to plunge

Anyone hoping mortgage rates will tumble in the coming months may need to reset their expectations.

At its June 17 meeting, the Federal Reserve left its benchmark interest rate unchanged and signaled there is no hurry to begin cutting rates. Policymakers also raised their inflation outlook for next year, suggesting borrowing costs could remain elevated longer than many economists had expected.

While the Fed doesn’t directly set mortgage rates, its outlook influences the bond market. This helps determine where mortgage rates move. So, when the Fed indicates a cut is on the horizon, mortgage rates typically come down and vice versa.

For now, Schoen expects mortgage rates to remain in familiar territory.

“Sticky inflation pressures—especially from energy—suggest the Fed will likely remain on hold, keeping mortgage rates trading in that 6% to 7% zone unless we see meaningful de-escalation on the global stage,” he wrote.

He was referring to geopolitical tensions that can drive energy prices and inflation higher.

Homebuyers are getting used to higher interest rates

Higher mortgage rates have not stopped buyers from entering the housing market.

Purchase mortgage applications were up 10.8% in the week ending June 12 from a year earlier and reached their highest level for the current week of the year since 2022, according to Fannie Mae data cited in the report.

Refinance applications also rose 25.1% over the same period, though overall refinance activity remains relatively muted because many homeowners continue to hold mortgages with much lower rates.

The broader housing market is also showing signs of becoming more balanced.

“Existing home sales rose modestly in May, inventory levels are gradually improving (months’ supply moving closer to healthier territory), and buyers finally have more options than they’ve enjoyed in recent years,” Schoen wrote.

More homes are giving buyers room to negotiate

More homes coming onto the market can give buyers something they have lacked for years: room to negotiate.

As housing stock grows and home price appreciation slows, buyers in many markets have more opportunities to negotiate on price, request repairs, or ask sellers to contribute toward closing costs.

“Price growth has moderated, giving rate-sensitive buyers a bit more negotiating power in many markets, especially when sellers price realistically and prepare their homes well,” Schoen wrote.

Conditions still vary widely from one local housing market to another, and competition remains high in some areas where housing stock is limited. Even so, today’s market is offering buyers more flexibility than they have seen in several years.

What homebuyers should do now

For buyers still waiting for mortgage rates to return to pandemic-era lows, experts say it may be worth looking at the bigger picture instead.

Mortgage rates are only one piece of the affordability equation. More homes for sale, slower home price growth, and greater negotiating power can help offset some of today’s higher borrowing costs.

“It’s not the frenzied seller’s market of 2021 through 2022, but it’s also far from a collapse—more like a market slowly finding balance in a higher-rate world,” Schoen wrote.