The intricate relationship between interest rates and the housing market has been debated for years. As the market evolves, so do the theories around it. 

Let’s dive deep into the impact of interest rates, particularly when the rate starts with a “5”, on home-buying behaviors.

Historical Context: The Role of Interest Rates

Understanding the numbers historically, if you look at the average interest rate over decades, it hovers around 7.74%. While excluding decades like the 1970s is tempting, it's essential to consider all data to get a holistic understanding. 

The past 20 years, a more relevant timeframe for many contemporary homebuyers, see this number at approximately 5.05%.

The Psychological Impact of "5"

The Rate Beginning with "5" Phenomenon A trend suggests homeowners with an interest rate above 5% are nearly twice as likely to sell their home than those below 5%. 

While it doesn’t mean those below 5% won't sell, it provides insight into potential market behaviors. If the rate starts with a “5”, it seems to stimulate activity—however, rates beginning with a "7" act as a deterrent for many.

Payment vs. Rate Perception 

When presented with monthly payment amounts that align with their goals, many homeowners are satisfied. However, when confronted with the interest rate number, suddenly, the perception shifts, and they feel the rate is too high. 

This psychological response to the interest rate number, irrespective of the monthly payment, can significantly affect home-buying behaviors.

The Market Movement Dynamics

Inventory and Interest Rates When rates drift into the “5” zone, the inventory situation will likely improve. But with rates remaining elevated for longer, a higher percentage of rates above 5%, 6%, or 7% may emerge. 

Even though a drop in rates to the 5 zone may not lead to a dramatic increase in inventory for buyers, it will likely speed up how quickly homes are sold and further push up home prices.

The Musical Chairs of Housing 

One possible outcome of rates dipping is homeowners swapping homes more frequently. The housing market's dynamics will resemble a game of musical chairs, with homeowners moving around but not necessarily increasing the inventory.

The Bigger Picture

2023: A Pivotal Year 2023 is projected to be the fifth-best volume year in real estate history. While the number of units may not be record-breaking, the overall volume indicates that house prices are rising nationwide. 

This price surge and the prevalent rates make the situation even more intricate.

Real Estate Professionals: Feast or Famine 

With over a million real estate agents nationwide and a growing number of lenders, the competition is stiff. The saturation of professionals in the market could make business challenging for many, potentially pushing some out of the industry.

Bottom Line

The relationship between interest rates and the housing market is multifaceted. While the "5" phenomenon may play a significant role in buyer behavior, other factors such as perception, market dynamics, and the number of industry professionals also heavily influence decisions. 

As the market evolves, it'll be intriguing to see how these elements interplay, shaping the future of home buying and selling.