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If mortgage rates drop to 5%, prepare for some excitement in the housing market! According to a Zillow survey, nearly 40% of homeowners with mortgage rates above 5% are considering selling their homes within the next three years. This is almost twice the number of homeowners with rates below 5% who plan to sell.


Zillow’s quarterly survey revealed that around 80% of mortgage holders currently have rates below 5%, with 90% below 6%. A significant portion (almost one-third) even enjoy rates below 3%. However, historically low rates during the pandemic, followed by a jump into the 7% range, have made many homeowners hesitant to move. As a result, existing home sales saw a dip of 3.3% in June to a seasonally adjusted annual rate of 4.16 million.


Though it’s unlikely that rates will return to 5% anytime soon, a slight dip may be expected as inflation comes under control. Nonetheless, most homeowners will stick to their homes, moving only for significant life events like having a new baby or retirement. This trend may make the market challenging for home shoppers, leading to fewer options and higher prices.


Interestingly, nearly one-quarter of homeowners are considering selling their homes in the next three years or have already listed them for sale. This percentage is significantly higher compared to a year ago. Among those with a mortgage rate above 5%, almost 40% are open to selling their homes within the next three years.


When asked why they would consider selling, 66% of homeowners wanted an upgraded home with nicer features. Half of them mentioned the expectation of getting more money now than in the future, while 45% cited a growing family as a driving factor.


We expect inventory to rise as mortgage rates dip into the 5% range. However, the shortage of for-sale homes pushes prices up, exacerbating the affordability crisis. Monthly mortgage payments are over twice as high as in 2020 and 13% higher than a year ago.


Nevertheless, home demand remains strong, and buyers are getting creative to achieve homeownership. Many buy points to lower their interest rates and reduce monthly mortgage payments. Additionally, some buyers are settling for smaller, more affordable homes as they navigate the competitive market.