On Wednesday, September 18, the Federal Reserve finally cut interest rates by 0.5%, ending the debate among experts about the magnitude of the rate cut. As a result, mortgage rates have shown a continuous downward trend in the past few months, with the 30-year fixed rate nearing 6%. How will these rates impact the U.S. real estate market in the coming months? Let’s explore together!
According to statistics from Freddie Mac, as of the week ending September 19, the average 30-year fixed mortgage rate reached 6.09%, hitting a new low in nearly two years. The last time a similar figure was seen was in January or February of last year, or in September 2022 when rates were climbing towards 7%, causing despair among many buyers.
With the Fed now initiating a rate-cutting cycle, will mortgage rates continue to drop below 5% or even 4%?
Lawrence Yun, chief economist at the National Association of Realtors, believes that the trend of further rate cuts by the Fed has already been factored into the mortgage rates. He suggests that with the central bank’s continued rate-cutting strategy, mortgage rates may not see significant further declines.
Yun further stated, “The Fed’s decision to cut rates by half a percentage point is the beginning of 6 to 8 rounds of rate cuts in 2025. Mortgage rates have already anticipated the potential path of the Fed. That is why the 30-year rates have dropped by 150 basis points from the beginning of the year until today. Therefore, any further decrease in mortgage rates will be minimal.”
Another expert, Ralph McLaughlin, senior economist at Realtor.com, shares a similar view, expecting that rates will not see substantial declines in the near future. “The rate decrease we’ve seen in recent months is largely due to market expectations of a 25 or 50 basis point rate cut today.”
While no one can accurately predict mortgage rates, McLaughlin suggests that rates may bottom out around 6-6.2% by the end of this year and potentially hit 5% in the spring of next year. Many experts hold similar views, as reflected in previous reports.
Federal Reserve Chairman Jerome Powell, in response to questions about rates and the housing market, mentioned that the future of mortgage rates depends on economic developments and emphasized the uncertainty of forecasting the economy for the next year.
Despite the recent decline in rates potentially revitalizing the real estate market, there are still several challenges to consider. The economy’s softness, rising unemployment rates, and slowing job growth may lead to consumer cautiousness in home buying decisions.
Lower mortgage rates may attract more buyers to the market, but experts do not expect a large-scale buying frenzy in the short term. Factors such as expectations of further rate cuts and seasonal trends influence buyer behavior, leading to a more subdued market in the fall season.
Looking ahead to next spring, assuming rates drop below 6% and with the arrival of the peak season, an uptick in market activity seems plausible.
Powell also highlighted the lingering housing supply issue, emphasizing that the Fed alone cannot address the lack of adequate housing supply and that solutions must involve market and government interventions.
In conclusion, while the real estate market typically enters a dormant phase, the continuous decline in rates may prompt some buyers to engage in transactions towards the year-end. The current low competition and potential for lower prices compared to next year might favor early buyers.
Ultimately, whether to purchase now or wait until next year depends on consumer circumstances and local market conditions, rather than solely focusing on rate fluctuations.
For sellers, as inventory gradually increases and demand remains subdued, fair pricing is advisable to avoid prolonged listing periods in the market. Both Redfin and Realtor.com have reported extended listing times in recent months, indicating the need for realistic pricing strategies.
While home buying activity may pick up in the spring, homeowners refinancing at lower rates are likely to take immediate action. Refinancing applications have surged by 24% compared to the previous week.
In conclusion, while the recent rate cuts have boosted refinancing activity, actual home sales have not seen a significant surge, and there are indications of a slowdown. Various factors such as rate expectations, political uncertainty, new commission rules, and economic concerns contribute to the subdued market conditions.
With expectations of smaller rate cuts in the coming months, experts predict a cautious approach by the Fed, with potential fluctuations in mortgage rates until the end of the year. The future path of rates is likely to be influenced by upcoming inflation and job reports.