The combination of unattainable mortgage rates and expensive housing prices has deterred potential buyers. Prospective sellers are also hesitant to list their homes for sale, fearing that doing so would require them to apply for a new mortgage at higher rates. Therefore, both buyers and sellers in the market are closely watching mortgage interest rates, hoping to find a favorable number that could reactivate the market.

So, what magical mortgage interest rate would entice both buyers and sellers back into the real estate market? We sought answers from mortgage institutions and delved into their crystal ball (and a lot of data) to uncover the mysteries within.

The rise in mortgage interest rates has put the market in a predicament. Two years ago, mortgage rates were around 3%. However, by November 2022, rates had doubled, surpassing the 7% threshold since August of that year.

For many, this number is just too high. But if mortgage interest rates were to drop to a lower level, would it be enough to motivate buyers and sellers to re-engage in the market? Or would the continuously rising home prices put the market into a neutral state?

Mason Whithead, branch manager of the Dallas Churchill Mortgage Company, states, "If the Fed keeps rates stable and the market tends to stabilize, I believe you will see more people getting back into it." (It's important to note that mortgage interest rates and the Fed rates are different, but they often move in sync.)

How does mortgage interest rates affect potential sellers? Whithead believes that if sellers have a strong desire to relocate, mortgage interest rates are not an absolute deterrent. However, in the current market conditions, even the most determined potential sellers find borrowing rates to be a significant obstacle.

For example, homeowners who refinanced at low rates a few years ago might hesitate to sell.

Additionally, some may worry about affording a new home after selling. This is because today's high home prices and interest rates may offset any economic gains from selling. Even with substantial home equity, these gains may not be enough to cover the new, higher mortgage payments.

So, what interest rate would stimulate potential homebuyers? Experts believe that it's not a specific number that attracts potential homebuyers back into the market, but a change in perception.

For some buyers displeased with current mortgage rates, it's hard to imagine signing up for rates over 7% when two years ago, rates were less than half of that.

Whithead says, "If we can bring rates back into the 5% range, that would be a huge motivator." The jump from 3% to 5% would have a less impactful shock, possibly enough to encourage homebuyers to start buying again.

Ralph DiBugnara, President of Home Qualified in New York and Senior Vice President at Cardinal Financial, believes that keeping rates consistently in the range of 6.5% to 7% might be enough to wake up dormant homebuyers by the last two quarters of 2023.

DiBugnara says, "By the end of 2023, average rates might be close to 8% or more. Every 1% reduction in rates is worth seizing for most people."

So, how much money can lowering interest rates save cash buyers? Let's calculate some numbers to illustrate. (These figures may vary based on different transaction costs, typically 2% to 7% of the loan amount.)

Assuming a home price of $500,000, a 20% down payment, and a loan amount of $400,000, DiBugnara states that if you secure a rate of 7.25% and pay a total of $11,995 in cash to pay off the loan, your monthly payment would be $2,728.71.

However, if you wait for the rate to drop to 5.75%, your monthly payment, based on the above example, would decrease to $2,334.29. This would result in a monthly savings of $394.42 and nearly $5,000 in annual savings.

As for the future trend of interest rates, while no one can accurately predict the actions of the Federal Reserve, Realtor.com predicts that mortgage rates next year will be around 6.8% and drop to around 6.5% by the end of 2024.

Different mortgage institutions have different views on the future of interest rates.

Matt Dumba, Vice President of the Southeast Region at Churchill Mortgage Company in Miami, believes that the latest Consumer Price Index report indicates progress in the Fed's strategy to address inflation.

Dumba predicts, "We will see a gradual decline in mortgage interest rates, approaching 6.5% to 6.75% by mid-2024. I am also optimistic that, barring any major economic upheavals, by the end of 2024, we might see these rates close to 6% to 6.25%."