Compass's new Chief Economist, Mike Simonsen, weighs in each week with his insights into the real estate market. This one had some good insights, and I wanted to share my thoughts on the matter with you.
People often ask me "Jon, when will interest rates fall?"
After so many years in the industry, I hear that as "Jon, I think that lower interest rates will make it easier for me to buy/sell a home. When can I expect that to happen so I can start planning?" While the train of thought "lower mortgage rates means more houses on the market means I can get a better deal" makes sense on the face of things, history tells us that isn't the case.
Before we get into how these trends have played out in the past, remember that the real estate market in Chester County trends towards less extreme, and less rapid, adjustments. So, while headlines across the nation (and even this national real estate market insights video) are focused on the softening real estate market, that's not really the case in our backyards. The headline "Chester County Consistent in Home Sales" isn't very interesting, though, so you'll probably never see it in print. After all, bad news sells newspapers.
But, Jon, what would happen in our area if interest rates (and mortgage rates) go down?
As we have seen time and time again, lower mortgage interest rates spur demand. It's easier for buyers to get financing, leading to more buyers active in the market. The problem is that lower interest rates don't bring more homes to the market as quickly as they bring buyers. It takes time for sellers to react to a market shift - rarely is a home ready to be listed the same week the owner decides it's time.
Here in Chester County, we continue to have more buyers than our inventory can support. If mortgage interest rates suddenly drop, even more buyers will enter the already packed market, and bidding wars will be even more in sellers' favor. Remember how wild things were from 2021-2023 when prices jumped up practically every week and bidding wars involved up to a dozen hopeful buyers..?
So, that's good news for sellers, right?
It depends. Sellers waiting for mortgage interest rates to decrease become buyers when they try to find a replacement home. While not all sellers turn into buyers, those who do may find the bidding wars don't play out in their favor. There's no guarantee that the increased sale price they might be able to get will be enough of a price difference to make up for the now more expensive replacement home.
But, Jon, aren't I loosing out if I buy now with mortgage rates where they are?
Now we're asking the right questions! Once again, the answer is "it depends." Are sellers loosing out compared to what? Compared to a 3 month period, maybe, but who moves every 3 months? In Pennsylvania, the average homeowner moves every 12ish years. Here in Chester County, we tend to stay put even longer, and that number is only getting larger over time.
Keeping that in mind, why would we be fixated on having the best mortgage interest rate of the past 2, 5, or even 10 years? With current rates around or below the 30 year historic average, any mortgage you get now should be considered a deal in the long run. If the world is turned on its head again and rates do plummet, then you're positioned to refinance. On the other side, if mortgage interest rates jump above the historic average, you'll already be set in your new home. Opportunity rarely knocks; will you let it pass you by?
If you're serious about buying or selling a home, now is an excellent time. Pricing, mortgage interest rates, and the amount of serious buyers are all in your favor... for now.
