The decline in mortgage rates over the last month likely will boost U.S. home sales by more than 200,000 as cheaper financing results in more people qualifying for loans, according to Lawerence Yun, chief economist of the National Association of Realtors.

“Each half a percentage point drop in mortgage rates results is an additional 200,000 home sales, and likely even more,” said Yun. “Since more people will qualify for mortgages, it leads to more sales.”

The average U.S. rate for a 30-year fixed home loan dropped to 6.28% last week from 6.73% in March’s first week, according to Freddie Mac. That decline in the cost of financing reduces monthly payments, meaning more buyers will pass the debt-to-income test lenders use to qualify applications.

“Lower mortgage rates open the gate – not for everyone, but for people who were on the margins,” Yun said.

Mortgage rates likely will remain near
near
the current level in the short term and decline further in the coming months, Yun said. The average U.S. rate for a 30-year fixed mortgage probably will be 6.3% in the second quarter and 5.9% in the third quarter, he said.

About 40% of U.S. home sales go under contract in the April to June period, according to data from NAR. Those sales typically close about two months later, with the buyers moving in the summer months.

“We’re smack dab in the peak of the spring home-buying season right now,” said Bill Banfield, executive vice president of capital markets for Rocket Mortgage. “People want to get into a home and settle their families before the new school year starts.”

Mortgage rates hit 20-year highs at the end of October and again in early November, according to Freddie Mac data, after inflation spooked investors and the Federal Reserve ended a bond-buying program aimed at supporting the economy during the worst of the pandemic.

Rates remained near those peaks until last month’s failure of Silicon Valley Bank, the 16th-largest U.S. commercial bank by assets, and Signature Bank, a smaller bank based in New York that catered to cryptocurrency investors.

That financial instability sent Wall Street investors scurrying for the perceived safety of the bonds markets. The increase in competition for fixed assets sent the average yield on 10-year Treasuries, a benchmark for mortgage rates, to a seven-month low last week, according to data from Intercontinental Exchange.

“Whenever there is unrest in the markets, mortgage rates tend to drop – especially with the Federal Reserve committed to fighting inflation,” said John Hardesty, general manager of the mortgage division at Argyle, a payroll data verification platform used by lenders. “We’re seeing some settling in mortgage rates, and it’s the perfect time for that.”