Solving the mystery of the 5.5% mortgage rate

It’s being called the magic number and the tipping point.

It all started when a survey found that 71% of prospective home buyers were not willing to accept a mortgage rate above 5.5%, and 62% of consumers believe a historically normal mortgage rate is below 5.5%. The publication was aptly titled: 5.5% Is the Magic Mortgage Rate.

With current 30-year fixed rate mortgages hovering at 6.4% and the historical average being 7.75%, it is convenient to forgive survey respondents for their erroneous beliefs. Or as wishful thinking derived from observing that more than 4 out of 5 current mortgages are at 5% or below.

Or the consumer respondents are savvier than the experts give them credit for.

According to a recent analysis by HousingIQ, 5.5% is the historical average house price appreciation based on data since 1975.

For most Americans, their house is their largest asset. And buying a house is one of the most significant investments they will ever make. From an investment perspective, a mortgage rate represents the cost of capital, and historical house price growth represents the expected return on the investment. A prudent and cautious investor will not borrow at a higher rate than the return they anticipate making with that borrowed money.

Undoubtedly, experts can punch holes through this simplistic explanation as it ignores leverage, tax benefits, owner occupancy, …

But then, 71% of the prospective home buyers and 62% of consumers intuitively zeroed in on a number – 5.5% – that 50 years of house price data and advanced statistical techniques corroborate.

Yes, 5.5% is the magic number for the housing market!

About the House Price Appreciation Indicator

The House Price Appreciation Indicator (HPAI) by HousingIQ is a monthly gauge of underlying house price changes at the national, state, and metro levels. Implemented as a dynamic factor model, it synthesizes multiple public and private data sources to provide a timely and actionable summary of ground truth. With data extending back to 1975, the HPAI powers comprehensive and granular insights into the US housing market for investors, lenders, sellers, and buyers.

Contact us to learn how you can make better-informed decisions about the housing market with HousingIQ’s reliable and up-to-date information.