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Writer's pictureRealFacts Editorial Team

10 Cities Poised to Benefit From Falling Mortgage Rates

Falling Mortgage Rates

With mortgage rates poised to drop further, the real estate market is on the verge of a significant shift, and certain cities stand to gain the most. According to a new analysis from Realtor.com, cities with a high proportion of owner-occupied homes with mortgages are likely to benefit as mortgage rates decline. As we head into the end of 2024 and beyond, lower rates could provide a much-needed spark to the housing market, offering new opportunities for both buyers and sellers. But how significant will the impact be, and what does it mean for those currently locked into their homes?


The Impact of Declining Rates


Mortgage rates have been hovering around 6% for much of the year, but the Federal Reserve’s recent 0.5% rate cut signals a possible shift. Realtor.com predicts that rates could fall into the high 5% range by spring 2025, potentially bringing relief to homeowners and buyers. For those in cities like Washington, DC, Denver, Raleigh, and others with high percentages of owner-occupied homes with mortgages, this could mean newfound flexibility.


Homeowners who have been reluctant to sell, often referred to as being locked in “golden handcuffs,” might now consider moving. These are people who locked in low mortgage rates during the height of the pandemic and have hesitated to sell because they would face much higher payments on a new loan. But with rates on the decline, the financial burden of a new mortgage could be more manageable, prompting them to list their homes and, in turn, increase inventory in these constrained markets.


For prospective buyers, especially in metros like Atlanta, Indianapolis, and San Diego, the affordability gap could narrow. As rates fall, monthly payments decrease, potentially enabling more buyers to qualify for loans. In cities where housing demand has remained strong, even amid rising rates, lower mortgage costs could be a catalyst for increased sales activity.


Older Homeowners and "Golden Handcuffs"


However, not everyone will be racing to take advantage of falling rates. Many older homeowners, particularly those aged 65 and above, are in a different position. Cities like New Orleans, Buffalo, and Pittsburgh, where the percentage of owner-occupied homes without mortgages is high, will likely see less direct impact from declining rates. These older homeowners have paid off their mortgages and aren’t as tied to interest rate fluctuations. For them, the decision to sell or stay put will be driven more by lifestyle considerations than financial ones.


Moreover, these homeowners may be in no rush to sell because they’ve built substantial equity in their homes over the years. They are less affected by the golden handcuffs of low mortgage rates, meaning the impact of falling rates might not entice them into the market as quickly as younger homeowners or those with existing mortgages.


What About Housing Supply?


One of the key issues in the housing market today is the lack of supply, particularly in popular cities like Washington, DC, and Seattle. The Realtor.com report suggests that declining rates could encourage more homeowners to sell, increasing inventory. However, the question remains: Will the influx of listings be enough to meet demand?


Even if more homes become available, the pace at which housing prices have appreciated in many of these markets may still present challenges for buyers. While lower rates make monthly payments more affordable, the higher home prices in these cities could still place a strain on potential buyers, especially first-time homebuyers. The relief from falling mortgage rates might not fully offset the impact of inflated home values.


On the other hand, cities with a significant percentage of homeowners without mortgages, such as Miami, Houston, and Cleveland, could see less turnover in the market. These homeowners are less affected by interest rate changes and are more likely to stay in their homes, resulting in fewer listings. While these cities may not experience as dramatic a shift as some of the higher-mortgage metros, they could still see a boost in overall market activity as buyers flock to cities where housing prices are relatively more affordable.


The Bigger Picture


The Fed’s decision to cut rates could very well be the spark that ignites a more active real estate market. For cities like Raleigh, Denver, and Virginia Beach, where a large percentage of homeowners have mortgages, this change could be monumental. Buyers in these areas who have been waiting on the sidelines may finally have a chance to jump in, while existing homeowners may finally find the freedom to upgrade or downsize.


However, for cities with a high number of older homeowners, the benefits may be less pronounced. Many of these homeowners have paid off their mortgages, leaving them relatively insulated from rate fluctuations. The extent to which falling mortgage rates will impact these markets remains to be seen, but the overall trend is clear: lower rates are likely to stimulate housing activity, even if the effects are uneven across regions.


In summary, the real estate market is in a unique position. With mortgage rates set to decline, markets across the U.S. are poised for renewed activity. While cities with a high percentage of owner-occupied homes with mortgages stand to benefit the most, the bigger question is whether this will be enough to solve the ongoing inventory shortage and rising home prices that continue to challenge buyers nationwide. Only time will tell, but for now, there’s a sense of optimism that the market could finally be turning a corner.

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