What's Happening with Mortgage Interest Rates?

As everyone knows, we are in a weird housing market. I could talk about reasons that this market has come about. But I'd rather talk about some of the facts on the ground that Buyers and Sellers are facing.


Interest rates. They're finally coming down. Mortgage Nuggets newsletter says 7.09% is the average for a 30-year fixed conventional loan right now. Freddie Mac's Primary Mortgage Market Survey says 7.22%.


For an investor buying a 400k property with 20% down, that's about $2,650 per month excluding Landlord Insurance (about $2,775 counting insurance). A solid investment property at the 400k price mark will bring about $2,670 in rent. After leasing and management fees, many investors will see about $400 per month in negative cashflow.


In other words, the tenants will be paying 85% of the mortgage in this scenario.



A 40% down payment could be the break-even point for a 400k investment renting at $2,670 per month. That is, it will break even after factoring in mortgage, insurance, leasing and management fees.


Many buyers are canceling contracts. Many houses on the market have been under contract and returned to active status. Buyers enter the process not realizing how large their monthly payment will be (if their agent and/or loan officer hasn't prepared them for the new reality).


As a result, while inventory of resale homes is low, there are as of December 2023 thousands of homes that have been on market more than 30 days.


The opportunity for rent-and-hold investors is better now than it has been since Spring 2022.


Another issue that works in your favor as an investor: owner-occupiers are avoiding houses that have obvious repair issues. Typical owner-occupier buyers are low on cash, unable to come up with closing costs and down payment and still have enough cash reserves to make repairs.


Finally, what about the future of mortgage interest rates. It's a guessing game, but experts are saying the Fed will probably not raise rates at their open markets committee meeting December 13 (Housing Wire, Nov 30 report). And many think rates will fall to 6.75% by Quarter 2 (Bright MLS, 2024 Housing Market Forecast).


If the rate drops to 6.75%, that will save more than $100 per month on 20% down for a 400k property (compared to current rates).
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