Barbara Corcoran Says The Mortgage Rate Drop Will Set the Housing Market on Fire

Real estate expert Barbara Corcoran recently discussed the housing market's current state, offering her thoughts on mortgage rates and their potential impact. In an appearance on Fox Business' "Cavuto: Coast to Coast," Corcoran, who is known for her sharp insights as a real estate mogul and Shark Tank investor, predicted that if mortgage rates were to drop to around 5%, it could set off a surge in homebuying activity.

As of mid-December 2023, mortgage rates saw a slight dip, falling from 6.69% to 6.6%, marking the fifth consecutive week of a download trend. Corcoran noted that mortgage rates have been fluctuating between 6% and 7% for a prolonged period, and while she's uncertain whether rates will ever dip below 6%, she stressed that any movement into the 5% range could be a game-changer for the market.

"Rates have been bouncing around for a while now... so people are confused, they don't have big expectations, they're no longer waiting for a tremendous rate drop. But if that happens, God, it would be incredible for the market," Corcoran explained, adding that many buyers have simply grown tired of waiting for rates to fall.

She went on to emphasize that while the market has been stable, there's a real need for new buyers—particularly first-time buyers—to enter the housing market.

A Need for First-Time Buyers

One of Corcoran's major concerns is the decreasing number of first-time homebuyers. She cited an alarming statistic, revealing that fewer than 24% of current homebuyers are purchasing for the first time, which she called "an all-time low." She believes that bringing more first-time buyers into the market is crucial to revitalizing the housing sector.

"What we're losing right now and what we desperately need right now is more first-time homebuyers," she stated, underscoring the importance of expanding access to homeownership for newcomers. First-time buyers have always been an essential part of the housing market, and their absence may be contributing to the current stagnation.

A Surge in Existing-Home Sales

Despite this shortage of first-time buyers, there are some bright spots. Corcoran pointed out that existing home sales have seen a 3.4% increase recently, marking the first year-over-year rise in nearly three years. While this could suggest a recovery, Corcoran noted that these sales were largely driven by repeat buyers rather than newcomers.

She mentioned that the increase in home sales is partly due to a greater number of homes available on the market. Buyers now have more choices, but many have adjusted to the current interest rate environment, no longer expecting a dramatic rate drop. "There were 25% more choices for the buyer coming out and looking. On top of that, buyers themselves have gotten accustomed to the rates being what they are, and they got tired of waiting," Corcoran said.

While more listings may lead to higher sales, Corcoran expressed concern that without a substantial increase in first-time buyers, the market might struggle to maintain its momentum.

The Impact of Lower Rates

Corcoran's optimistic outlook hinges on the possibility of mortgage rates falling further. According to Danielle Hale, the chief economist at Realtor.com®, even small reductions in mortgage rates can have a significant impact on potential buyers.

"Every drop in mortgage rates is going to make a difference for some home shoppers who are on the margin," Hale explained. She echoed Corcoran's sentiment that a sharp decline to 5% could cause a "jolt" in the market, pulling in both buyers and sellers in a way that would quickly revitalize the housing sector.

However, Hale also noted that a gradual decline in rates would likely lead to a more moderate increase in activity. The key factor, according to Hale, is how the market responds to these shifts: "If we see a sharp drop in mortgage rates to 5%, that could bring in a lot of buyers and sellers at once—and really jolt the housing market."

In contrast, higher rates would likely have the opposite effect. Both Corcoran and Hale agreed that if rates were to rise, it could seriously slow down the housing market and the broader economy, potentially leading to a downturn in home sales and a reduction in overall economic activity.

Stabilizing at Around 6%?

While there's much uncertainty in the market, Corcoran doesn't believe mortgage rates will rise much higher. "I don't think people are thinking it's going to go much up," she said. While she acknowledged the possibility of rates creeping higher, she remained hopeful that they will stabilize around 6% or lower, which she believes would offer the best conditions for the housing market to thrive.

For now, the market remains in a kind of holding pattern, with buyers and sellers waiting for clearer signals. Corcoran's prediction of a market "going ballistic" in response to lower rates offers hope for a housing revival, but the challenge remains: until those rates fall, many first-time buyers may continue to sit on the sidelines.

Broader Economic Implications

The trajectory of mortgage rates has broader economic implications as well. The housing market plays a critical role in the overall economy, influencing everything from consumer confidence to construction jobs and local tax revenues. A strong housing market generally fosters optimism, while a downturn can create a ripple effect across multiple sectors.

The recent uptick in home sales, despite fewer first-time buyers, suggests that the market is finding ways to adapt. However, the lack of new buyers entering the scene could eventually limit future growth. As such, many industry experts, including Corcoran and Hale, continue to monitor the rate of interest and the broader economic conditions that will dictate whether the housing market can truly take off in the near future.

In conclusion, the housing market's fate may well depend on the movement of the mortgage rates, but even more importantly, on the ability to re-engage first-time homebuyers who are essential to a balanced and thriving market. Without them, the recovery, while possible, may not reach its full potential.

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