The Federal Reserve’s first interest rate cut in four years has brought a surprise to the real estate market. Two real estate brokers in Southern California expressed in interviews that although the rate cut may not immediately shake the high housing prices in the region, it is indeed good news for buyers, sellers, and brokers.
In Southern California, particularly in Los Angeles, Orange County, and San Diego County, the high housing prices have deterred many potential buyers. The continuous increase in interest rates over the past few years has also led to rising mortgage interest costs. Will this recent rate cut by the central bank, along with possible further cuts in the coming months, reignite the real estate market?
“In the short term, this rate cut will not have a significant impact on the real estate market in Southern California,” said Los Angeles real estate broker Roy Zhang. He stated that there are deeper determining factors affecting the Southern California real estate market, and a single rate cut is not enough to influence prices, “I think it can be considered negligible.”
“On a psychological level, the rate cut has not brought significant impacts to buyers and sellers,” Roy Zhang said. “Several months ago, there was already an expectation of a rate cut, and even loan companies had made proactive adjustments to interest rates.”
He lamented that for many, buying a home in Southern California has become an insurmountable obstacle. With housing prices soaring beyond the increase in residents’ wages, many struggle to afford homes, and even paying rent becomes challenging for some, “Many people spend over half of their income on housing, finding a high-paying job is not easy, and some even carry credit card debt.”
San Diego veteran real estate broker Gong Zhuyun mentioned that while many anticipated a rate cut in September, the Federal Reserve’s aggressive 50 basis points cut still came as a surprise. The current reaction in the real estate market is not yet evident, but whether buyers, sellers, or brokers, they all feel happy about the rate cut.
“With the rate cut, there may be an increase in potential buyers entering the market; sellers will also be happy as the turnover speed of listed properties may accelerate,” Gong Zhuyun said. In August, in San Diego, the average time a detached home spent on the market was 29 days, and for townhomes, it was 33 days, “It might sell in just over a dozen days from now.”
Last month, the average price for a detached home in San Diego was about $1.404 million, and townhomes, including condos and city homes, had an average price of $814,000, both showing a decline in prices. Over the past three months, San Diego’s detached home prices even experienced a nearly 5% drop.
“With numerous corporate layoffs recently, particularly in the tech industry, the positions being cut are the higher-paying ones,” Gong Zhuyun said. If the unemployment rate rises, it may force some people to sell their homes, increasing the housing supply and driving prices down.
He believes that it can be expected that the Federal Reserve may have another round of rate cuts before the year-end, “Not necessarily to lower mortgage rates, but mainly to reduce credit card interest rates for the public.” Statistics show that over half of Americans hold credit card debt, with an average household debt of $8,600.
In recent times, the 30-year mortgage rates have significantly decreased, leading to a rise in new mortgages and refinancing. According to data from the Mortgage Bankers Association, mortgage applications last week increased by 14.2% compared to the previous week; the proportion of housing loan refinancing rose by 24% compared to the previous week, showing a 127% increase from the same period last year.
Regarding the increasing proportion of refinancing, Roy Zhang noted that he found some lending institutions advertising fee-free refinancing, promising to continue providing free loans if rates drop again within six or nine months, or offering very cheap rates even if there are fees. “But ‘the proof of the pudding is in the eating,’ your actual qualifications may be eligible for even lower loan rates,” he said.
Gong Zhuyun also observed that Chinese lending companies are currently offering 30-year mortgage rates below 6%. “Due to fierce competition among the Chinese, especially in the Los Angeles area, the rates they offer are even lower than traditional banks.” According to his understanding, some 30-year loan rates have already dropped to around 5.9%.
“In the next month or two, there will definitely be more borrowers,” Gong Zhuyun stated. While the increase or decrease of buyers is not immediately apparent, many buyers who were waiting on the sidelines when rates were above 7% are likely to reenter the market now. He stated, “In terms of San Diego, there is still high demand and limited supply of houses here, although the real estate market has slowed down, significant price drops are unlikely.”