Wells: Mortgage rates and buying trends: What’s next?

On the surface, it seems like a head scratcher: If the U.S. Federal Reserve is continuing to lower the fed funds rate, why are mortgage rates moving up?

In fact, since the Fed made its first move to cut rates in September, mortgage rates are up by three-quarters of a percentage point, reaching 6.93% in mid-November for a 30-year fixed-rate loan. So, what gives?

Mortgage rates trends are influenced more by the demand for longer term government Treasury bonds than by the fed funds rate. And recently, as more money has flowed in stocks than into government bonds, yields on 10-year Treasury bonds have increased, bringing mortgage rates with it. 

President-elect Donald Trump campaigned on the need for greater government tariffs and cutting taxes. With that in mind, financial markets are waiting to learn how these actions could affect the federal deficit. Even as the central bank continues to cut the fed funds rate through 2025, many economists — including the National Association of Realtors chief economist Lawrence Yun — are suggesting that mortgage rates in the range of 6% will stay put for the foreseeable future. Consequently, consumers should not expect much movement in rates.

“Today, we have a massive budget deficit at a time when we are not in an economic recession,” Yun said recently at NAR NXT, a forum to discuss real estate issues and trends. “Clearly, President-elect Trump will not stop tax cuts; he will extend or expand them. There will be less mortgage money available because the government is borrowing so much money. However, if the Trump administration can lay out a credible plan to reduce the budget deficit, then mortgage rates can move downward.”

NAR study finds a shift in home buying demographics

In its annual Profile of Home Buyers and Sellers, the National Association of Realtors has shed light on how current housing market conditions are putting a pinch on first-time home buyers.

According to the report, first-time home buyers represent only 24% of sales so far in 2024, the lowest on record and down from 32% in 2023. A related data point is that the median age for first-time home buyers this year is 38, the highest on record and up from 35 last year. By comparison, the typical first-time buyer during the 1980s was in their late 20s.

Another demographic that stands out in the NAR report is 17% of home buyers this year are purchasing homes for multi-generational use. Cost savings was the number one reason (36%), followed by the need to take care of aging parents (25%), accommodating children over the age of 18 who move back home (21%), and children over the age of 18 who never left home (20%).

The market is changing how people pay for housing

Twenty-six percent of buyers paid all cash for their home so far this year, the highest rate on record. Also, 31% of repeat buyers — thanks to access to home equity — paid all cash. These trends are also making a difference in the Northern Colorado market.

The growth in all-cash buyers is reflected in the fact that the median down payment for repeat buyers was 23%. By comparison, the median down payment for first-time buyers was 9%.

For repeat buyers, this represents the highest median down payment since 2003. But at 9%, the typical down payment for first-time buyers is also up — the highest since 1997. With more all-cash buyers as competition, it’s apparent that first-time buyers need to pay more up front to be competitive.

Fort Collins, Loveland, and Berthoud have all seen the highest percentage of cash transactions on record. 

Brandon Wells is president of The Group Inc. He can be reached at bwells@thegroupinc.com or 970-430-6463

Editor’s note: This story has been corrected to reflect that the median down payment for repeat buyers was 23%.

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