The best time to buy a home is here, offering buyers favorable conditions, including ample for-sale inventory, lower-than-peak prices, and more price reductions. Mortgage rates have reached their lowest level in roughly two years, making this fall even more welcoming for homebuyers. However, the housing supply remains well below pre-pandemic levels. Scarce inventory has kept upward pressure on home prices, especially in affordable areas where homes continue to sell at a quick clip and buyers face considerable competition. High, but improving, mortgage rates may bring some buyers and sellers back to the market, but the majority of homeowners hold a mortgage rate more than 2 percentage points below today’s going rate.
In the second quarter of 2024, 21.6% of outstanding mortgages had an interest rate below 3%. The Freddie Mac fixed rate on a 30-year loan dipped below 3% in July 2020, and generally stayed below the 3% threshold through September 2021. This was the only period in the data’s history (back to 1971) where rates dropped below this threshold.
| Outstanding Mortgage Rate | Share of Mortgages (2024 Q2) | Cumulative Share |
| < 3% | 21.6% | 21.6% |
| 3% to 4% | 34.6% | 56.2% |
| 4% to 5% | 18.4% | 74.6% |
| 5% to 6% | 9.6% | 84.2% |
| 6% + | 15.8% | 100% |
More than a third (34.6%) of outstanding mortgages have an interest rate between 3% and 4%, 18.4% have a rate between 4% and 5%, 9.6% have a rate between 5% and 6%, and 15.8% have a rate of 6% or greater.
Altogether, this means that more than half of outstanding mortgages have a rate of 4% or lower, and roughly three-quarters have a rate of 5% or lower. Today, mortgage rates are hovering around 6%, reaching this level for the first time since September 2022. For the time being, many homeowners have chosen to stay put, holding off on listing their home for sale until mortgage rates come down further. Based on a recent survey, 82% of those looking to sell their home and purchase a new one feel “locked in” by high mortgage rates.
The share of homeowners holding a mortgage with a rate of 6% or higher increased 5 percentage points between Q2 2023 and Q2 2024 as buyer activity carried on, despite high rates. Even in today’s high-price, high-rate market, homebuying activity around big life events (kids, marriage, divorce, etc.) keeps the market in motion. Though the lock-in effect continues to affect the market, a recent survey revealed that a sizable 40% of potential buyers would find a home purchase feasible if mortgage rates were to drop below 6%, and 32% of buyers would be willing to participate if rates dropped below 5%.
Easing inflation and mortgage rates will be key drivers of seller activity, which will relieve some of the price pressure and competition felt in today’s under-supplied market.