National Housing Market OutlookConsumer and Home Design Trends

5.5 Is Still the Magic Number

Mikaela Arroyo photo
Alex Thomas photo

Mikaela Arroyo

Alex Thomas

September 29, 2023
Real estate agent greeting women in a house

The 5.5% mortgage rate still holds its magic spell on consumers.

In March, we found that 5.5% was the magic mortgage rate, the tipping point beyond which most consumers say they would not buy a home. And despite six months of rates hovering between 6.5% and 7.5%, consumer attitudes haven’t budged a bit.

3 reasons the 5.5% rate has such a hold on consumers:

1. Consumers are mentally anchored to low rates. This month, our New Home Trends Institute surveyed more than 1,300 homeowners and renters with household incomes of $50,000+. 66% of those consumers believe a historically “normal” mortgage rate is below 5.5%.

  • Mortgage rates stayed below 5% for 12 straight years, when most of these borrowers bought or refinanced. According to our survey, 90% of current borrowers have a rate below 5.5%.

2. Consumers can’t afford a higher rate. Consumers aren’t just stuck in the past; many told us they simply couldn’t afford the mortgage payment a rate above 5.5% would entail.

3. Consumers expect rates to fall. While a return to historically low rates is not on our bingo card, consumers are counting on it. 88% of consumers think that rates will dip below 5.5% at some point in the next five years.

  • For prospective homebuyers who haven’t started actively shopping, “waiting for mortgage rates to drop” is the #2 reason (after “waiting for a life change”), double the share who said the same in March.
jbrec-mortgage-rate-considered-normal-graph

It’s clear that the long-awaited “vibe shift” of consumers adjusting to higher mortgage rates hasn’t happened yet. Rates apparently must stay higher for longer to break the enchantment.

To learn more about how consumer sentiment on economic conditions and personal finances is impacting the housing market, please get in touch.

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About The Author

Mikaela Arroyo photo
Mikaela Arroyo
Vice President, NHTI | Chief of Staff
Mikaela leads trend research for the New Home Trends Institute, conducting monthly surveys of consumers and industry professionals to better understand housing pain points and desires. As Chief of Staff to the CEO, Mikaela strategizes and supports the daily operations of the company, focusing on business initiatives.
Alex Thomas photo
Alex Thomas
Senior Research Analyst, Macro
Alex assists our research team in tracking macro-level economic and housing trends and data. He also helps cover the fix-and-flip space.

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