Barbara Corcoran has said it before, and she’ll probably say it again: When mortgage rates fall, home prices will rise. “If rates go down just another percentage point…prices are going to go through the roof,” the self-made real estate millionaire and Shark Tank star toldFox Business yesterday.
The average 30-year fixed mortgage rate is 6.91%. It’s much lower than the 8% mortgage rates we saw in October last year, but it’s a far cry from the historic lows experienced throughout the pandemic. Still, in her view, 6% seems to be the “magic number,” and once mortgage rates dip to that point, sidelined buyers will come rushing into the housing market, Corcoran said.
“Everybody is going to charge the market, and so if you wait for interest rates to come down by another point, I don’t think you’ll gain,” she said. “I think you’ll wind up paying more, because I wouldn’t be surprised if real estate went up by another 8% or 10% if interest rates come down another point.”
On an earlier occasion, Corcoran said prices would “explode” the minute interest rates fall; and on another, she said they could rise 10% to 15%. After leaving interest rates unchanged several meetings in a row, Federal Reserve officials still signaled three cuts this year. If that does occur, mortgage rates will follow.
Home prices rose substantially during the pandemic-fueled housing boom. By one estimate, the national average house price has risen almost 50% since the start of the pandemic. Not to mention, home prices rose another 6% in January. The average sales price of houses sold in the country was $492,300 as of the fourth quarter last year. It was just $384,600 in the fourth quarter of 2019, before the pandemic began. It’s hard to imagine what another 10% increase would look like given how unaffordable the housing market already is: one in which buyers need to make $30,000 more than they currently do to buy a home, and it’s cheaper to rent than buy and will be for years.
Home prices keep rising because we’re missing anywhere between roughly 2 and 7 million homes; everyone knows it, including the Biden administration and the Fed Chair. Interestingly enough, some have gone as far as to suggest that home prices could fall in the aftermath of the National Association of Realtors’ groundbreaking $418 million settlement, which above all made it so commissions could no longer be baked into listings. Corcoran doesn’t see that happening.
“The cost of housing, I believe, will go up because it has been going up for the last five years, despite the dire state of the shortage of houses,” Corcoran said. “There’s not enough houses to go around.”
Even if sellers are paying a smaller commission, “they want the most money they can get, so they’re going to take any savings and put it in their pocket,” she explained. Additionally, on the topic of the NAR settlement, Corcoran said commissions have always been negotiable; what’ll really change is that everything will be done in writing—which is a good thing. “I think that was needed for clarity,” she said. And of course, Corcoran was a broker herself; she started her own brokerage firm, the Corcoran Group, in the early 1970s and eventually sold it for $66 million.
“But the confusing part is sellers’ and buyers’ brokers are not allowed to look up commissions anymore on the MLS,” Corcoran continued, referring to the Multiple Listing Service. “There’s no status as to whether I’ll pay you as a broker, or I won’t pay you as a broker. So it’s a guessing game.”