When will mortgage rates drop? Las Vegas buyers, owners await answer

There are two questions longtime Las Vegas Valley Realtor Tim Kelly Kiernan said he gets almost every time he talks to potential buyers or sellers of residential real estate these days.

The first is why mortgage rates are so high, as the average rate for a 30-year-fixed term mortgage has not gone below 6 percent since September 2022. With another expected interest rate cut Wednesday from the Federal Reserve, he said the market is definitely getting a bit antsy. Freddie Mac has the 30-year fixed-term mortgage at 6.1 percent.

“That is a million-dollar question. Rates jumped from 3 percent or so to 5 then 6 then even 7 percent since the summer of 2022,” he said. “Historically the average home mortgage rate has been around 7 percent from what I recall. Inflation has a lot to do with rates being where they are. When we have economic uncertainty, the bond market tends to do well and Treasury bonds rates increase, when that happens typically mortgage rates also rise.”

Kiernan said the second question he gets almost as much as the first is what buyers or sellers should do within this new rate landscape. The Feds cute rates in September by a quarter basis point, part of a series of expected cuts that started in July of last year.

Las Vegas’ real estate market has been locked since the aftermath of the pandemic as a lot of homeowners have ultra-low mortgages rates they got during the pandemic, and potential buyers are hoping for lower rates. Kiernan said this has created a market of uncertainty about when the right time to buy or sell is.

“That is the second million-dollar question. My thought is as the Federal Reserve lowers rates that should help mortgage rates begin to fall. There is a tremendous amount of pent up demand from both buyers and sellers. Sellers are wanting to sell but can’t because they currently have a rate in the 2 to 4 percent range and don’t want to purchase at a 6 or 7 percent range.”

Unless something dramatic happens to the U.S. economy like the 2008 recession or COVID-19, local Re/Max Central broker and owner Lori Galarza said potential buyers or sellers should get used to higher rates.

“When homes sit longer and values start to drop dramatically because there are not enough qualified buyers to purchase, rates drop in order to make those homes more affordable to more buyers,’ she said. “We hope we don’t see an economy like that any time soon as it means that more people start to struggle financially and usually the more financially stable buyers can take advantage of the lower rates.

How do mortgage rates work?

Local mortgage advisor Matt Hennessy explained that mortgage rates move in a similar direction to the 10-year Treasury yield and investor demand for mortgage-backed securities. He said once investors feel confident that inflation is under control (an issue since the pandemic), they will buy more bonds which includes mortgage securities. He added this increased demand would then drive yields down, which would directly help mortgage rates.

“Interest rate relief is likely on the horizon, though it won’t happen overnight,” he said. “Most credible forecasters, including the housing finance agencies, expect mortgage rates to ease meaningfully through the end of 2025 and into 2026. If the Federal Reserve follows through with rate cuts and inflation continues to cool, we could see 30-year fixed rates dip below the 6 percent range by early 2026.”

Redfin’s latest report, which looks at U.S. home sales up through Oct. 19 shows that mortgage rates hit their lowest level in three years however buyers across the country largely remain on the sidelines. The report noted a number of factors contributing to this.

“There are a few reasons buyers are wary. One, the forces pushing mortgage rates down–economic uncertainty and political tensions–are also making some house hunters feel uneasy about making a major purchase. Buyers are also facing stubbornly high prices, with the median home-sale price up 2 percent year over year, the biggest increase in six months,” read the report.

New listings also rose 4.6 percent, according to Redfin, the biggest increase in nearly five months and nationwide there are approximately half a million more home sellers than buyers. Another Redfin report has the Las Vegas Valley as the ninth strongest buyer’s market in the country with sellers outnumbering buyers by 89.6 percent (13,618 sellers to 7,183 buyers) as of September. Redfin also has the valley just slipping into the top 10 for markets where the most home purchase agreements were cancelled in September.

Kiernan said until mortgage rates drop the market will continue to be dampened by a number of factors, the first and foremost being a large supply of homes for sale. He also pointed to a recent UNLV Lied Center for Real Estate study that showed the average person needs to make close to $120,000 annually to afford a mortgage.

“Inventory has increased dramatically over the last 12 months. Affordability is an issue in Las Vegas. With the strong appreciation many homeowners have seen, many buyers can not qualify for a home loan,” he said. “Lastly, some sellers have unrealistic expectations of what their home is worth.

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.