Mortgage rates have come down from the 23-year highs that have frustrated the housing market, and are now sitting at the lowest level since February 2023. Rates had already started to come down ahead of last week's Federal Reserve decision to cut interest rates for the first time since 2020, and are poised to fall further in the months ahead. Lower mortgage rates over time should help recharge the housing market.
As rates continue to fall there will likely be a surge in home sales and refinance applications, as homeowners become “unlocked” from their current rates and are less hesitant to sell their homes or remortgage at a lower rate. However, some experts believe that many homeowners will hold off on refinancing or selling until mortgage rates reach a “magic number.”
What is that magic number? And when it's reached, which areas of the country are likely to benefit the most? A recent study from Realtor.com identified the areas in which easing mortgage rates will “unlock” the housing market the most.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The latest Fed meeting
The Federal Reserve cut interest rates at its latest policy-setting meeting on September 17-18, bringing the federal funds rate, a key overnight bank lending rate that influences all kinds of borrowing costs, down by 50 basis points to a range of 4.75% to 5%. More rate cuts are expected throughout the rest of this year and into 2025.
And while the federal funds rate doesn't directly impact mortgage rates, Fed cuts on short-term rates "will boost banks’ lending margins and should bring some extra reduction in mortgage rates, too," according to Kiplinger's Interest Rates Outlook.
Realtor.com economists predict that by the end of the year, mortgage rates will drop to 6.3%. That 6.3% figure gets close to the so-called "magic number." Here's a look at the metro areas most likely to benefit.
Top 10 metro areas where most mortgages are unlocked by lower rates
To determine the areas where the greatest number of mortgages would be unlocked by lower rates, Realtor.com used the Realtor.com public records database and Optimal Blue to analyze the number of home sales in each area since 2020 when mortgage rates averaged over 6.5%, expressed as a share of the metro’s total number of owner-occupied housing units, according to the U.S. Census Bureau. Here’s what they found.
1. Naples, FL
Share of mortgages above 6.5%: 15.2%
Median list price in July: $770,000
2. St. Louis, MO
Share of mortgages above 6.5%: 13.9%
Median list price in July: $313,900
3. Myrtle Beach, SC
Share of mortgages above 6.5%: 13.4%
Median list price in July: $339,900
4. Cape Coral, FL
Share of mortgages above 6.5%: 12.4%
Median list price in July: $449,950
5. Miami, FL
Share of mortgages above 6.5%: 12.4%
Median list price in July: $449,950
6. Albuquerque, NM
Share of mortgages above 6.5%: 11.6%
Median list price in July: $419,000
7. Kansas City, MO
Share of mortgages above 6.5%: 11%
Median list price in July: $410,000
8. Fort Wayne, IN
Share of mortgages above 6.5%: 10.5%
Median list price in July: $319,900
9. Oklahoma City, OK
Share of mortgages above 6.5%: 10.4%
Median list price in July: $325,903
10. New Haven, CT
Share of mortgages above 6.5%: 10.3%
Median list price in July: $424,925
"Inventory climbed annually in July in each of these markets, which may have spurred recent sales, despite still-high mortgage rates,” says Realtor.com senior data analyst Hannah Jones. “This means that buyers in these markets stand to enjoy ample home options even today, and can take advantage of falling rates.”
According to Realtor.com, Naples, Cape Coral, Fort Myers and Myrtle Beach have recently experienced a surge in population growth, which could also account for such a large share of mortgages with rates exceeding 6.5%.
Use our tool below, powered by Bankrate, to compare mortgage rates today.
The magic number for mortgage rates
Many experts believe that the magic number to bring sidelined buyers into the housing market is 6%. When mortgage rates drop below 6%, there will be a surge in home buyers — stirring up demand, and driving up home prices.
Earlier this year, Shark Tank investor and self-made real estate millionaire, Barbara Corcoran, told Fox Business that if rates go down just another percentage point, "everyone will come out and buy." However, she believes that this will cause prices to skyrocket. "I wouldn't be surprised if real estate went up by another 8 or 10% if interest rates come down," says Corcoran.
Home prices are already going up, increasing year over year by 4.9% in May 2024 compared with May 2023, according to CoreLogic. Realtor.com's economic research team expects list prices to rise 4.6% by the end of this year.
Related Content
-
Over 162,000 Dreamers Cut Off From Affordable Care Act InsuranceHealth Insurance A federal court in North Dakota has blocked ACA coverage for DACA recipients in 19 states. Here's what it means.
-
What to Learn from Corporate Insiders' TradesWhen corporate insiders buy or sell, it can offer clues on whether you should do the same.
-
Quiz: Test Your Financial LiteracyTry your hand at these three questions designed to gauge your knowledge of the ABCs of personal finance. In a survey, only 43% of Americans answered correctly.
-
How to Get the Maximum Social Security Check in 2025The maximum Social Security check is $5,108 in 2025, up from $4,873 in 2024. Even if you don't qualify for the maximum monthly benefit, you can still increase your payments.
-
The Best Ways to Use Your Year-End Bonus (and the Worst)'National Lampoon's Christmas Vacation' shouldn't be anyone's go-to for financial advice, but it does remind us how not to spend a holiday bonus.
-
Never Talk About Money? For Women, That Can Spell DisasterHow can you plan for retirement when your husband holds the purse strings and talking about money is taboo? Help is at hand for this common problem for women.
-
How to Guard Against Identity Theft in 2025Scammers are getting better at impersonating legitimate businesses.
-
How to Leave Money to Your Descendants But Still Keep ControlYour choice of trustee(s) can dramatically influence how closely your wishes are carried out. These tips will help avoid bad blood among your heirs.
-
One Cure for Legal Headaches: The Advice of Outside CounselSometimes your lawyer is too involved in whatever deal you're trying to swing, but outside counsel has no skin in the game and can tell you like it is.
-
Year-End Retirement Tax Planning Actions if You Have $1 Million or MoreConsider implementing these four strategies before December 31 to potentially improve your tax situation for this year and the future.
