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Mortgage interest rates drop quickly, now at 7-month lows

Hi All,

The big story in real estate this month was the large, quick drop in mortgage interest rates. In one 2-day stretch, rates fell .5%, one of the quickest drops on record. For context, in late October rates were around 8%, and now they’re in the mid-6s. The reason for the quick drop was the Federal Reserve Board’s announcement on December 13 of its plan to begin lowering a government-controlled interest rate (the federal funds rate) in 2024. This is a sign the government believes the worst of inflation is over.

Here’s how the drop in rates looks for a monthly payment:

Interest rate: 8%

• Purchase price: $525,000

• Down payment (20%): $105,000

• Annual property taxes: $4,000

• Home insurance: $1,000

• Total monthly payment (PITI, or principle, interest, taxes, and insurance): $3,498

Interest rate: 6.6%

• Purchase price: $525,000

• Down payment (20%): $105,000

• Annual property taxes: $4,000

• Home insurance: $1,000

• Total monthly payment (PITI): $3,099

What lower rates may mean for our Portland market in 2024

Overall, 2023 was a year that saw lots of potential buyers and sellers decided to sit out. (Total closed sales in Portland in 2023 were down 26% from 2022.) On the buying side, people weren’t comfortable taking on the large monthly payments that came with the high interest rates. On the selling side, sellers were unwilling to give up their current home with its low interest rate (many owners I talk with currently have a rate below 4%) to buy a new home at a higher rate.

That said, if rates continue to drop in 2024 and the economy holds, we may see a fairly busy year, as the buyers and sellers who sat out 2023 begin to come off the sidelines.

One group I’ll be paying attention to in 2024 is the move-up millennials, who will become both buyers and sellers. These are millennials who bought starter homes in the past 5 years and have seen their financial situation improve with increased wages (especially since Covid) and a strong stock market. (The S&P 500 is up about 25% this year.) As a group, they will be selling their starter homes to buy larger, more expensive homes as they look for more space for growing families or want to be in different areas of town for school, community, lifestyle, etc.

I work with downsizers, helping people sell their large homes and buy a condo (

), first-time homebuyers, work relocations, and multi-family investors. If you or your friends/family have real estate questions, I’m easy to reach and always happy to chat.

My cell is 503-951-5476, and email works well, too. I’m at [email protected].

Thanks a bunch, and talk soon,
Chris

I hope you had a great Christmas with friends and family. My sister hosted our family this year – here’s a picture of her son, Declan, aka “the hor d’oeuvres dude”!