Are below 6% mortgage rates and a tsunami of buyers and investors coming in 2024?

[AJ Wong]

Don't look now but mortgage rates have declined at an almost historical rate during the past month. 

Just 4-6 weeks ago clients purchasing second home or investment properties were being quoted in the 8%'s and even..gulp..9%'s on non conventional financing. Needless to say that put a few investors on pause, those that did forge ahead could be in line for a refinance and reduction of their mortgage obligation soon. 

The 10 year US Treasury, a correlated measure of US mortgage rates has dropped nearly 1% in just the past few weeks and looks to possibly further decline with the expectation of as many as two to six (!?) Fed rate cuts in 2024. 

Should the average 30 year mortgage rate for primary homes get to below 6%, prepare for a flood of intense purchase and refinance activity, all with a potentially short window of opportunity and execution. 

Already, this past two weeks I've had several investors re-connect to explore their investment goals. A few had shelved their plans until news of more attractive terms reached their feeds. Several clients intending to utilize 1031X properties had been waiting for their listings to go pending, which subsequently have, I presume as a result of more attractive terms for home owners.

Admittedly the drop in interest rates is occurring much faster than I and our team had anticipated. We were gearing up for an end of Q1 2024 rush to refinance, and just recently put in place our mortgage brokerage license to expand our investor resources. 

I priced an ultra conforming loan this morning that was near 6.25%+/- on a 30 year fixed and 5.5% on a 15-20 year term. Those are GREAT terms! Perhaps not compared to 3% rates but that was a historical abnormality that is unlikely to return, if ever, soon. I remember from 2004-2008 when 6% rate was a solid mortgage rate. 

Similarly to back then, I am observing lenders get slightly more creative and aggressive in how they qualify. Many have recently launched HELOC, Fixed rate seconds or high CLTV (Combined Loan to Value) products and are even permitting STR income, high LTV foreign nationals, low credit score and High DTI properties to qualify. Even 5+ unit and commercial lenders are softening requirements, slightly..

One area of note is for those that had been considering DSCR loans to qualify, recently due to higher interest rates, qualifying based on property income distorted ratios to exceed underwriting guidelines. Should rates continue to decline, many of these transactions could become more enticing and feasible, causing an increase in mortgage and purchase market activity.

We're somewhat urgently encouraging buyers and mortgage clients that had paused their search to reconnect with their lending professional for renewed qualification, they might be very surprised at how significantly terms have improved and be early to the investor race. 

What are you seeing in your local market? How low do you think rates will go? How long will it last?  

At what interest rate level do we see frequent multiple offer scenarios?

How do you mass communicate to you clients and brokers of changing mortgage market conditions? 

Thanks!