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Rates Are Going Down
(Could Optimism Be Creeping Up?)
Quote of the Week
“This decision [to cut the rate by half a point] reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2%.”
~ Jerome Powell, Federal Reserve Chairman
The real estate market is like a giant puzzle. But unlike a cardboard puzzle, we’re talking real bricks and mortar, so the stakes are high. And there are so many moving parts and variables involved that trying to align everything and make it fit can be overwhelming. So many pieces to consider: Fed rate cuts, mortgage rate volatility, consumer mindset, inventory levels, insurance changes, home values, the general economy overall, not to mention the pending Presidential election. It’s a lot to figure out—especially because it’s ever-evolving.
The Current Situation
Fed rate was cut by half a point yet mortgage rates went up anyway. That’s interesting. So is the fact that inventory is increasing (steadily in some areas) while home values remain strong too. And with the election looming, everyone is holding their collective breath to see what the economy will do. Let’s take a deeper look at what this means for buyers and sellers.
Fed Rate Cuts 101
The Fed rate cut influences short-term rates, not the 30-year fixed mortgage rate—at least not directly. Mortgage rates are more closely tied to longer-term Treasury yields, which have already fallen by about 1.5% from their peak in late 2023. This means that while the Fed’s actions are important, mortgage rates have already factored in many of the expected changes.
Fickle Mortgage Rates
While many are hoping for lower mortgage rates, that didn’t happen right away. In fact, they rose! The market is more interested in the Fed’s outlook on future rates, especially as outlined in their “dot plot,” which can sway rates in either direction. Point is, it’s important to understand that the impact of a Federal rate cut may not be as straightforward as it seems. But as time marches on, the new half-point cut should ease mortgage rates. In fact, mortgage rates had already fallen nearly 2% from last year’s peak at 8.0%, reflecting what the market believes will happen in the coming months.
Bottom Line:
Even when rate cuts happen, mortgage rates could still fluctuate based on the Fed’s future outlook.
Mortgage Rates and Projections
30-Year Fixed Rate, As of 09/04/24
Source: Fannie Mae, MBA, NAR, Wells Fargo
Home Values Remain Strong
Despite market slowdowns throughout the past year, home prices continue to show strength. CoreLogic forecasts a 2.2% rise over the next year, and I’m hearing from various housing prognosticators that we could see a cumulative 20% appreciation over the next five years. For those considering a purchase, just remember…housing remains a very reliable avenue for wealth generation as a short or long-term investment.
It’s Not a Circus (But It’s a Balancing Act)
I try to remember that in times of uncertainty and market change. Inventory levels are rising, which is good, and homes are sitting on the market longer, indicating a shift toward a more balanced market. Sellers should be focusing on a strategic price point (not an inflated one), as aspirational prices tend to deter buyers. And on the buyer’s side, stop trying to time the market perfectly. It’s not only impossible, but it will make for sleepless nights. If (after conferring with a knowledgeable agent and lender) buying makes sense for you now, consider taking action.
Market Snapshot
Inventory: Active listings are rising, with homes sitting on the market longer. Median days on market have increased to over 50 days.
Pricing: Correct pricing is crucial. Price reductions are becoming more common as sellers adjust to current market dynamics.
Market Outlook: With a more balanced market emerging, both buyers and sellers need to be prepared. For buyers, getting pre-approved and understanding loan options is essential. Sellers should expect offers contingent on a multitude of thorough inspections (“over-inspecting”) and be open to repairs and improvements.