Will Mortgage Rates Drop to 3%? What Texas Homebuyers Need to Know

Will Mortgage Rates Drop to 3% Again?

The ultra-low rates we saw in 2020-2021 weren’t normal, they were a direct response to the pandemic.

What happened back then?

• The Federal Reserve slashed interest rates to nearly 0% to stimulate the economy.
  
  
• The government pumped trillions of dollars into financial markets.
  
  
• Mortgage rates plunged to historic lows, briefly dipping below 3%.

That was a one-time event, and it’s not coming back anytime soon.

Where are mortgage rates headed now?

• The Fed has hinted at rate cuts later in 2024, but mortgage rates don’t move in lockstep with the Fed’s decisions.
  
  
• Experts predict rates could fall to the 5-6% range by the end of the year, which is still significantly higher than the 3% levels many are hoping for.
  
  
• Inflation is cooling, but the Fed remains cautious - if they cut rates too aggressively, inflation could spike again, keeping mortgage rates elevated.

Bottom line:  If you’re holding out for a 3% mortgage rate before buying, you could be waiting for a long timepossibly forever.

What’s Happening in the Texas Housing Market?

Texas has been one of the hottest housing markets in the country for years, but things are changing.

1. Home Prices Have Stabilized

In 2023, Texas home prices saw a correction after surging during the pandemic. But unlike some states, the market didn’t crash, prices simply leveled off.

Why?

• Demand remains high. Texas is still attracting new residents from high-cost states like California and New York.
  
  
• Housing supply is limited. Many homeowners who locked in ultra-low mortgage rates are reluctant to sell, keeping inventory tight.
  
  
• The job market is strong. Tech, finance, and energy industries continue to bring high-income buyers into Texas.

Key takeaway: Prices aren’t skyrocketing anymore, but they’re also not tanking. Buyers now have more negotiating power than they did in 2021-2022.

2. Home Insurance Costs Are Soaring

Texas homeowners are facing a new affordability crisis -  rising insurance premiums.

What’s driving the increase?

• More extreme weather: Hailstorms, hurricanes, and flooding have led to higher claims.
  
  
• Insurance companies pulling out: Some major insurers have left high-risk areas, reducing options for homeowners.
  
  
• Increased rebuilding costs: Labor and material costs are up, making insurance payouts more expensive.

How bad is it?

Texas home insurance rates jumped 23% in 2023 and are expected to rise again in 2024.

Why it matters: Even if mortgage rates drop slightly, higher insurance costs could wipe out those savings. Buyers need to budget for this when calculating their monthly housing expenses.

3. Who’s Still Buying Homes in Texas?

Despite higher rates, some groups remain active in the market:

Cash Buyers & Investors:

• They’re not impacted by mortgage rates.
  
  
• Many are snapping up properties at discounted prices.

People Relocating for Work:

• Texas continues to attract companies and new residents.
  
  
• Professionals moving to cities like Austin, Dallas, and Houston are still driving home sales.
  
  

Move-Up Buyers:

• Homeowners with significant home equity are still upgrading, even with higher rates.
  
  
• Some are using HELOCs (home equity lines of credit) or other financing options to avoid selling their low-rate homes.

Advice for Mortagage Brokers and Real Estate Professionals:

• Focus on buyers who can afford to move despite higher rates, especially investors and high-income professionals.
  
  
• Educate buyers on creative financing options (e.g., seller concessions, rate buy-downs).

Should You Buy Now or Wait?

• If you’re waiting for 3% rates, you might be waiting forever.
  
  
• If you’re expecting a housing crash, Texas housing market remain strong.
  
  
• If you’re ready to buy, the market is stabilizing, giving you negotiating power.

What’s your strategy? Are you buying, selling, or holding off? Let’s discuss!