Customers must contend with the new normal for mortgage rates
By Joe Higgins, Quest4Quality
A serious issue for our industry is the recent prediction that mortgage rates will not break the 6% barrier either this year or next.
The harsh truth is that buyers are priced out of the market by high home prices and high mortgage rates, and the same is true for sellers. This significantly impacts your overall sales, as every existing home sold in the U.S. carries with it an average spend of $9,400 on new furniture, appliances and consumer tech.
The thing is, mortgage rates over the last 50 years averaged 7.7%. Many of us remember years ago that getting a 6% rate would be a time for celebration, and even 6.5% sounded good when I bought my first house.
A Thing of the Past
However, today’s buyers have gotten use to rates on a 30-year mortgage of between 2.3% and 5%, and the thought of going higher than that does not sit well with the average consumer. Plus, it prices out a considerable number of potential homeowners.
I hate to sound like I lack empathy, but 6%-6.5% is the new normal in America so if your customers want a home, they’d better get used to these rates. It seems like the only thing that will bring rates down would be a recession, and no one wants to even think about that possibility.
Here are the headwinds your customers are facing if they are in the market for a home. There is uncertainty in markets today as investors are unsure what will come next. Talk of blanket tariffs on Mexico and Canada, our two largest trading partners, could prove inflationary, and if inflation rises, the Fed will have to backtrack and raise interest rates.
Significant corporate tax cuts, as proposed by the incoming Administration, would slow tax money into the treasury and limit capital for home loans, which could also increase rates. I see robust economic growth next year, but the additional spending will also increase the deficit and the national debt and bring back inflation.
Get While the Gettin’s Good
Mortgage rates will move between 6.2% and 6.6% over the next 12 months. Remember that rates dropped 180 basis points at the time of the Fed’s first cut in September, from 7.8% in 2023 to 6%. That may not prompt someone to buy now, but prices will only go higher as the severe shortage of homes continues to push up prices.
We are in a new paradigm, as existing home sales were up 6.1% year over year in November, marking the housing market’s best performance since July 2021. It proves that sellers cannot put off the need to find a more suitable home, and buyers are waiting for the right deal.
Existing home sales will ramp up slowly but will significantly impact your overall sales of appliances and furniture. Again, every existing home sold in the U.S. carries with it average spending of $9,400 on items our members sell. BrandSource dealers depend on the housing market; lower rates will bring energy into the sale of homes and will raise your revenue.
Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, “Quest 4 Quality with Joe,” at Q4QwithJoe.com.
