From Residential to Commercial: How Mortgage Rate Fluctuations Affect the Real Estate Landscape

This article primarily discusses the residential real estate market, but it can indirectly relate to commercial real estate in several ways:

Interest Rate Trends: Although the article focuses on mortgage rates for residential properties, the trends in interest rates often influence commercial real estate as well. When residential mortgage rates decrease, it can be an indicator that broader economic conditions might also lead to lower rates for commercial loans. Lower interest rates reduce the cost of borrowing for commercial real estate investors, potentially leading to increased investment activity.
Economic Indicators: The article mentions softer economic data, inflation trends, and unemployment rates, which are critical factors that influence both residential and commercial real estate markets. If the Federal Reserve cuts interest rates due to slowing inflation and rising unemployment, it could similarly impact the cost of financing in the commercial sector, affecting property values and investment strategies.
Market Sentiment: The article highlights a cooler residential market with slower sales and declining prices. This sentiment can spill over into the commercial market as well. If potential buyers in the residential market are cautious, this cautious approach may extend to commercial investors, especially those who operate in sectors closely tied to consumer behavior, like retail or multifamily housing.
Supply and Demand Dynamics: Just as the residential market is experiencing an increase in supply and a slowdown in demand, similar trends could be observed in the commercial market. An increase in commercial properties for sale, coupled with slower leasing or purchasing activity, might lead to price adjustments and longer times on the market.
Broader Economic Impacts: The overall economic conditions, such as inflation and employment levels discussed in the article, affect consumer spending and business operations, which in turn impact the demand for commercial spaces. For example, higher unemployment could lead to less demand for office or retail space, just as it could reduce demand for homes.
In summary, while the article directly discusses residential real estate, the economic factors and market trends it outlines can influence the commercial real estate market, particularly in terms of financing conditions, investor sentiment, and overall market activity.

Mortgage rates fell this week, with the average rate for a 30-year fixed home loan going from 6.49% last week to 6.46% for the week ending Aug. 22, according to Freddie Mac.

“Although mortgage rates have stayed relatively flat over the past couple of weeks, softer incoming economic data suggest rates will gently slope downward through the end of the year,” Sam Khater, Freddie Mac’s chief economist, said in a statement. “Earlier this month, rates plunged and are now lingering just under 6.5 percent, which has not been enough to motivate potential homebuyers. We expect rates likely will need to decline another percentage point to generate buyer demand.”

As a result, “things are shaping up for a buyer-friendly end of summer,” according to Realtor.com® senior economist Joel Berner in his recent analysis.

Will the housing market continue to heat up as temperatures cool down this fall? Here’s a snapshot of the latest housing market data and what it means for homebuyers and sellers in the latest installment of our “Weekly Housing Market Update.”

Where mortgage rates might be headed:

There was very little change this week in Freddie Mac’s 30-year mortgage rate, as the financial market holds its breath awaiting Friday’s speech by Federal Reserve Chair Jerome Powell.

Investors and economists hope Powell will provide important clues about the central bank’s next steps on where interest rates are heading.

Last month, inflation dropped below 3% in July for the first time since 2021, “fueling widespread expectations that the Federal Reserve will initiate its first interest rate cuts in September,” says Realtor.com economist Jiayi Xu. (While the Fed doesn’t set mortgage rates, Fed rates and mortgage rates tend to move in the same direction.)

However, unemployment rose to 4.3% in July, sparking concerns about a potential recession.

Thus, policymakers will time rate cuts carefully, “seeking to curb inflation without triggering a sharp increase in unemployment,” says Xu.

Home prices continue to fall

Not only are interest rates dropping, home prices are, too.

Median list prices fell 1.2% year over year for the week ending Aug. 17.

This marks 12 weeks in a row where the median list price in the U.S. was less than or equal to what it was a year ago. (In July 2024, the national median list price was $439,950.)

Indeed, buyers and sellers have seen a consistent overall moderation in prices this summer.

Since January, the share of listings with price reductions has been more in line with pre-pandemic levels as the pace of sales has moderated, “bringing more listings in line with buyers’ budgets,” says Berner. 

The number of homes for sale shot up

For the week ending Aug. 17, the total number of houses for sale increased by 34.8% compared with the same time last year, marking a 41-week streak of growth.

With considerably more homes on the market than there were at this time in 2023, “sellers are starting to be relieved of the mortgage rate lock-in effect that has constrained the supply of listings over the past year,” says Berner.

In the meantime, fresh listings new to the market dipped by 0.2% for the week ending Aug. 17 year over year.

Despite mortgage rates falling in early August, new listings are “struggling to rebound as negative sentiment around selling a home persists,” says Berner. “Potential buyers are just starting to see the recovery in the number of options available to them post-pandemic.”

selling a home persists,” says Berner. “Potential buyers are just starting to see the recovery in the number of options available to them post-pandemic.”

The market’s pace slows to a crawl

Homes spent seven more days on the market for the week ending Aug. 17 compared with the same time in 2023. (The typical home spent 50 days on the market in July.)

This was the 15th consecutive week that a home spent longer on the market than at the same time a year ago, despite what is normally a busy time in the real estate market.

“The summer months are typically the fastest-moving part of the year when it comes to the time a listing spends on the market, but 2024 was more active earlier in the year,” says Berner.

Buyers headed into the fall market should take note of the cooler sales pace, which means they will have more time to visit listings and make an informed decision.

David Tworoger, MBA
Broker/President
Market Realty, LLC.
1126 S. Federal Hwy, #364
Fort Lauderdale, FL 33316
Direct 954-254-3647
[email protected]
www.MarketRealtyFL.com