If mortgage rates continue their slide in the coming months as bond traders try to divine the future of the U.S. economy and the Federal Reserve’s next moves, higher-end first-time homebuyers could be the first in line to benefit. iStock photo
Massachusetts residents struggle to become first-time homebuyers, but the recent downward trend in mortgage interest rates will help the richest ones most if it continues.
Mortgage interest rates have fallen to the lowest levels in 11 months according to mortgage-buyer Freddie Mac, averaging 6.26 percent on a 30-year, fixed-rate loan for the seven days ending Thursday, Sept. 18.
Aspiring first-time homebuyers have struggled to get into their first house ever since the pandemic-era rush to buy ended in an upward spiral of home prices and the Federal Reserve’s inflation-fighting interest rate hikes in 2022.
The median first-time American homebuyer has reached an all-time high age of 38 years old according to the National Association of Realtors. NAR research also found that first-time homebuyer’s share of purchases decreased to a historic low of 24 percent in 2024, the most recent data available.
The deck appears stacked against first-time homebuyers, Massachusetts Housing Partnership Executive Director Clark Ziegler said.
“I think it’s just incredibly demoralizing to look at the odds against households trying to become homeowners,” he said. “We’re seeing this whole generation being put in an almost impossible situation around home buying.”
Rate Cuts Will Help Wealthy Shoppers
But that could be changing.
“Low interest rates will benefit people who are taking on the most debt when it comes to buying homes,” said Daryl Fairweather, the chief economist at brokerage Redfin. “This tends to be people who are first-time home buyers, who are making smaller down payments, like 5 percent or less, because so much of the cost is carrying that interest.”
Still, aspiring homeowners on the higher end of the income scale will be able to take advantage of any fall in mortgage interest rates, she said.
“It will probably be more affluent first-time home buyers who have really high income, who are unsatisfied with renting, or maybe they don’t like the kind of homes that are for rent, entering into the for-sale market,” Fairweather said. “At these high mortgage rates, it’s more affordable to rent, than it is to buy but a lot of people want to buy because it’s challenging to find single-family homes for rent, or homes suitable for families to rent. They really just want to have the status of being homeowners.”
A March analysis by Fairweather’s colleagues found the share of renters in the ranks of Greater Boston’s richest 20 percent grew faster than the national rate between 2019 and 2023.
Higher-End Homes Helped Most
Another factor: the value of homes in Massachusetts. The median single-family home price increased 4.2 percent on a year-over-year basis last month, to $658,200 according to The Warren Group, the publisher of Banker & Tradesman. Additionally, the median year-to-date single-family sale price increased 4 percent on a year-to-date basis to $645,000.
Considering the value of homes in Massachusetts, Fairweather noted how interest rates have a greater effect in areas with high-value homes.
“Interest rates also tend to disproportionately affect more expensive homes,” she said. “It’s not quite linear, the relationship between interest rates and mortgage payments So first time home buyers and expensive markets on the coasts are probably going to be some of the biggest beneficiaries of lower rates.”
The state’s home prices and elevated mortgage interest rates have seen households depart Massachusetts for more affordable homebuying options, Ziegler said.
“The risk that we’ve known for a long time is out-migration,” he said. “I think the data is really clear on that. We are consistently losing folks, losing a lot of young folks to domestic out-migration. As long as there are cheaper home buying options in other parts of country where there are jobs, then that’s a problem for us. Ultimately, we just need a market that’s more functional. The gap between incomes and prices is just unsustainable.”
August New Listings Flat
Interest rates are potentially set to trend downwards between now and next spring, depending on how bond traders read economic conditions and the Federal Reserve’s interest rate policies.
Fed leaders’ predictions about future rate cuts released along with last week’s decision showed some members on the key rate-setting committee aren’t convinced more cuts are needed this year. That would put them at odds with the way bond traders have reportedly been pricing the likelihood of rate cuts.
That means homeowners who have low interest rates around 3 percent or 4 percent might be more willing to put their home on the market, adding some inventory in Massachusetts, Liberty Bank’s head of retail lending Matthew Cammarota said.
This is particularly needed as the numbers of new homes hitting the market barely increased as the fall housing market approached, suggesting many potential sellers haven’t budged.
According to Zillow, the combined total of new single-family and condominium listings in Greater Boston increased by only 1.1 percent in August. Similarly, in Massachusetts as a whole numbers of new listings only increased by 1.25 percent last month.
Still, some homeowners could be itching to move due to the condition of the homes purchased in the earlier half of the decade, Redfin’s Fairweather said.
“It’s been a long time since rates were low, so a lot of these people are just not happy with the homes that they’re in,” she said. “Maybe they bought homes that were too small, or they got new jobs on a different part of town, and they’d really like to move, but it’s been too expensive to move.”
Weeks of Supply Creeping Up
In its most up to date weekly numbers, MLS data compiled by Redfin shows a steady increase in active listings across all residential property types. As of Sept. 14, there were 16.87 percent more active listings in Greater Boston – 8,254 in total – than in 2024, 20.02 percent more in the Worcester metro and 14.97 percent more in the Pioneer Valley.
Sam Lattof
Additionally, the median number of days a Greater Boston home spent on the market in the four weeks ending Sept. 14 increased to 23 days, a modest increase of 2.25 percent year-over-year.
The Greater Boston market has 11.3 weeks of supply across all residential unit types, up nearly 2 weeks from this time in 2024. The Worcester metro sits at nearly the same place, while the Springfield metro area has 10.4 weeks of supply, up by 1.8 weeks from the same time last year.
That’s close to where the state, as a whole, was in September 2019, according to Massachusetts Association of Realtors historical data, with 3 months of single-family supply and 2.6 months of condominium supply.
But in order for there to be significant inventory changes, Fairweather believes it would take the economy heading in a positive direction not seen since before the pandemic. This includes no lasting inflation from tariffs and returning to pre-pandemic economic growth and interest rates. Homeowners with extremely low interest rates will need significant financial changes to get off the sidelines, she said.
