Lower interest rates could make financing home loans more affordable across Wyoming
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Lower borrowing costs for home buyers, some say, could lead to a surge in buyers who are looking for homes. The nationwide housing crisis has been, in large part, driven by a lack of housing supply, and increasing the number of buyers in the market could lead to a higher demand for an already-limited supply of housing.
How does the lending market actually work?
When the
The immediate effect on mortgage rates appears limited because markets had already factored in the change, "staying relatively steady after the announcement,"
The
"This cut helps," Godby said on Wednesday. "The bottom line is that interest rates have already fallen on mortgages, but they're still relatively high."
As of last week, a 30-year fixed average mortgage was 6.1%, down from over 7% in May of this year.
"It has already fallen, and the reason it has fallen is not because this specific rate cut occurred, but it's understood that the
By 2026-2027, rates may fall by 40%, meaning mortgages could be around the high 4% range, or below 5%, as early as next year. They could be below 4% — but not far below 4% — a year after that, Godby said, cautioning that his numbers were estimates.
Short of having a recession that's so serious that interest rates at the
The best borrowers in the country are likely to secure an interest rate in the 4% range, which is historically normal, according to Godby. Typically, a 30-year mortgage will have an interest rate of about a percent and a half above the Federal Reserve Rate: If that rate is 2.9%, the best mortgage rate would fall in the 4% range.
What does it mean for housing in
Homebuyers do have reason to be optimistic going into 2025, as declining rates can assist with affordability, Volzke said. Housing sale prices remain elevated, though, and represent the other half of the equation when calculating that final monthly mortgage payment.
In 2018, before the pandemic, the statewide median housing price was roughly
"So even with rates starting to soften, the amount of mortgage debt to be financed is considerably higher than it was a few years back," Volzke said.
A decline in interest rates over the course of the next year could help with financing costs, but it also may have the "unintended consequence" of bringing more competition to the limited housing stock in
"More competitive rates could pull some would-be homebuyers that have been sitting on the sidelines due to perceived higher rates back into the house hunting group," Volzke said. "Until more housing inventory can be brought to market, the declining rates can assist, but not solve, the housing affordability problems we are experiencing."
Godby shared similar thoughts, but said that lower interest rates could mean an uptick in building.
"When you're a builder, you finance the building of homes with loans," he said.
When builder loans are at higher interest rates, fewer companies are willing to take the risk to borrow as much to build more homes, meaning high interest rates have had the effect of reducing the amount of new homes in the market.
"No matter how many homes a builder wants to build, higher interest rates make it harder to do that, because the borrowing cost of building subdivisions becomes more burdensome. When it costs more, they build less," Godby said.
A second impact higher interest rates have had on the supply of houses on the market in
Homeowners who may want to list their homes have likely avoided doing so in recent years, because many with an interest rate of 4% would not want to finance a new home loan at 7%.
"A lot of people are staying put. That 'lock-in effect' is having a really significant effect on the supply of homes available," Godby said. "The biggest part of the market is not new homes, but existing homes."
Other programs continue to be necessary
Certain markets will continue to be challenged regardless of interest rates, Godby said.
Places like
"You can identify the markets where, even when interest rates were incredibly low, housing affordability was still a real challenge. Those are very often resort communities, high amenity communities or communities that experience high growth," Godby said. "Those structural issues are very difficult to solve."
Communities like this must continue to incentivize affordable housing programs aimed at helping the local labor force purchase a home, as well as supporting developers willing to build affordable housing.
"Affordability is a real challenge in some places, and
"In those situations, you have to talk about adding to the housing stock through special programs, subsidies and income support," he said.
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