REAL ESTATE NEWS

There is a widespread expectation that the Fed’s recent decision to lower its benchmark lending rate will drive mortgage rates lower and make it more affordable for would-be homeowners to finally get their feet on the property ladder.

But a new analysis by Realtor.com suggests that outcomes may vary depending on homeownership levels in different locations, the share of homes in each that are covered by mortgages or owned free and clear and the number of seniors who own property there.

“In general, markets with a greater usage of mortgages will be more sensitive to rate changes, while areas with a higher share of outright homeownership may see less effect from the rate decrease,” Redfin commented.

The report projected that rates would remain in the low 6% range through the end of the year, bringing buyers back into the market. Currently, it said 81% of existing mortgages have a rate of 6% or lower.

However, a separate report from the company noted that mortgage rates had instead moved up by four basis points to 6.3% as of September 25 – though even with the increase, mortgage rates remain near 11-month lows.

The company cited data from the 2024 American Community Survey to show that 59.7% of homeowners lived in homes with a mortgage, while 40.3% owned their homes free and clear. In comparison, in 2010, 67.2% of owners had mortgages and 32.8% were outright owners.

The highest rates of owner-occupied homes with a mortgage were found in the West and Northeast, followed by the Midwest and South. As mortgage rates fall, the report predicted increased sales activity in the District of Columbia, Maryland, Colorado, Utah and California where mortgage use is greater, while markets with higher outright ownership rates were likely to see less impact.

The District of Columbia stood out as having the nation’s highest percentage of homes with a mortgage (74.3%) and just 25.7% with no mortgage. By state, the lowest percentage of homes with a mortgage was found in West Virginia (44.9%) while 55.1% of homes in the state were owned free and clear.

The impact of lower mortgage rates on different markets is also likely to be affected by the age profile of homeowners in those markets, the report stated. “Older households account for the majority of outright owners—53.9% were aged 65+ in 2024—on par with levels seen in the previous years.” Older homeowners have had time to build equity in their homes and reduce the need for new mortgage debt and are therefore less likely to be affected by lower rates – especially in areas with significant older populations like Miami and Tampa, Realtor.com stated.

Source: GlobeSt/ALM