Consumers won't budge until mortgage interest rates get this low: survey

Nearly two-thirds of consumers are "encouraged" that mortgage rates will be dropping soon and the market is moving closer to the level that will get many to act, a Mphasis Digital Risk survey said.

The survey found that 64% of the 1,818 respondents to the survey taken July 22 and 23 believe rates will be trending down in the near future, with 21% stating they were very encouraged this will be happening, and another 43% claiming to be somewhat encouraged.

In recent weeks, mortgage rates have dropped. The Mortgage Bankers Association's Weekly Application Survey released today put the conforming 30-year fixed at 6.54%, down 1 basis point from the previous week and from 7.03% for the week ended June 28.

That is in line with Lender Price data posted on the National Mortgage News website, which went to 6.547% on the morning of Aug. 14 from 7.021% on June 27.

Last week's Freddie Mac Primary Mortgage Market Survey was even lower, at 6.47%, down from 6.95% for July 3 and 7.03% on May 30.

These are still higher than what Mphasis Digital Risk pegged as the "magic number" to bring those consumers into the home purchase market.

While 20% of respondents defined that mortgage rate at 6%, the largest share, 42% said 5% was their magic number and 27% was even lower, at 4%. Rates have not been that low since March of 2022, although much of the prior decade before the pandemic they were in the 3% through 5% range, Freddie Mac data showed.

The remaining 11% of respondents said they were not sure about what mortgage rate would get them to act.

Inflation was the leading factor consumers cited as causing higher mortgage rates, by 30% of respondents, followed by 23% blaming Pres. Biden, while 13% named the Federal Reserve.

Positive news on inflation released on Wednesday morning increased the likelihood of the Federal Open Market Committee reducing rates at the September meeting. While the FOMC does not impact the 10-year Treasury yield directly, investors price these bonds based on economic news such as inflation and their reaction.

"Many prospective buyers started questioning the American dream of home ownership as inflation brought mortgage rates to a cyclical peak of 8% in October 2023, but now rates are down more than 1.5% from this peak," said Jeff Taylor, managing director of Mphasis Digital Risk, in a press release. "We're now getting closer to homebuyers' comfort zone of low-6%, high-5% rates, and September's anticipated Fed cuts should help buyer sentiment." 

That makes it more likely the mortgage industry could meet 2025 forecasts of $2 trillion in volume, he continued.

Another reason why 2025 might be the target date for increased activity is wariness over the upcoming Presidential election. A substantial minority, 39% of those surveyed, responded yes when asked if the uncertainty around the election is causing them to postpone a decision on buying, selling or remodeling a home.

The results match those of a survey from Veterans United Home Loans.

The belief that a different administration would improve the housing market got an affirmative response from 56% of consumers.

Just 29% of those surveyed plan to buy a home in the next six months, while 23% who were looking said they were discouraged by the sellers' market and rising home prices after "an unproductive search" for two or more years.

Backing other recent data, the survey found homeowner's insurance availability is a big influence on the decision to move for potential buyers.

Slightly under half, 47%, believe home insurance costs will have "a lot" (18%) or "a good deal"" (29%) of influence in where they decide to move.

When it comes to where they currently live, 25% are considering moving due to extreme weather in their area, while 26% said they knew of someone who was forced to move because of home insurance costs.

Just under eight in 10 said they were concerned about extreme weather, with a subset of 40% stating they are more worried now than five years ago.

As for the hidden costs of homeownership, 48% claimed to be challenged by home-related expenses, including maintenance, utilities, taxes and fees. Meanwhile, 39% of those surveyed reported a significant increase in their monthly mortgage payments, which given the vast predominance of fixed rate loans, is likely because of increases in the taxes and insurance portion.