Mortgage rate drop impacts housing markets differently across US

High mortgage rates are on the decline, and while this trend is beneficial for all homebuyers, a new report by Realtor.com® indicates that certain areas will experience more significant effects. Cities like Denver, Raleigh, NC, and Baltimore are expected to feel a greater impact from falling rates in the coming months.

These cities have high percentages of mortgage usage compared to other markets, meaning more residents are still paying off their mortgages than elsewhere. In contrast, "housing markets in West Virginia, Mississippi, Louisiana, New Mexico, and Arkansas are likely to see less impact from lower rates," says Realtor.com economist Jiayi Yu. This is because a larger share of homeowners in these states own their homes outright.

Yu further explains that "84% of existing mortgages have a rate of 6% or lower." As mortgage rates approach this level, more homeowners may be "unlocked," particularly in areas with high mortgage usage.

During the COVID-19 pandemic, many who purchased homes at low interest rates found themselves "locked in" due to financial impracticality of buying at higher rates. This situation has contributed to an inventory squeeze and a seller-friendly market. However, following the Federal Reserve's interest rate cut in September, new sellers have entered the market. According to THE Realtor.com September Housing Market Report, there were 34% more homes for sale than a year ago—an indication that falling rates might be aiding market recovery.