What the Fed’s Rate Cutting Plans Mean for the Housing Market
Buyers’ Wait is Over
Last month, the Federal Reserve announced a 50-basis-point cut to the federal funds rate, while projecting a comparable reduction through the rest of the year. Mortgage lenders have already baked this assumption into mortgage interest rates, which have fallen more than a full percentage point since peaking over 7% in spring. If lower mortgage interest rates are finally here, what does that portend for potential home buyers, refinancers, and sellers?
Buyers
Generally, when rates fall, buyer demand rises – but that didn’t happen as mortgage rates dropped this summer, according to Chen Zhao, head of economic research at Redfin. She speculates this Federal Reserve announcement will bring more buyers to the market. "They’re waiting to see the Fed take action, not realizing that this gets priced in early." According to a recent survey, 15% of Americans plan to buy a house once rates decrease. If you’re in that 15%, now’s probably a good time to start looking.
Buyers’ Timing
It’s going to come down to timing. Not timing the market, but whether it’s the right time for you. If you’re ready to buy and find an affordable home that will work for you, take the plunge.
Homeowners’ Refinance Opportunities
Folks who bought homes at higher mortgage rates have also been anxiously awaiting a rate cut. And with mortgage rates already at lower levels, some homeowners could benefit from refinancing. With 30-year interest rates near 6%, roughly 4.7 million homeowners could lower their interest rates at least 75 basis points, according to data from real estate tech firm ICE Mortgage Technology.
The Key to Rate Lock-in
There’s an even larger number of homeowners on the opposite end of the mortgage rate scale, with mortgage rates that are well below even today’s lower rates. This gap between borrowers’ rates and current rates creates a "lock in" effect, where homeowners are reluctant – or in some cases, can’t afford – to give up that lower interest rate by selling their home.
Conclusion
The Federal Reserve’s rate cuts may not bring back the ultra-low interest rates of the 2010s, but they can still have a positive impact on the housing market. With lower mortgage rates, buyers may feel more confident in entering the market, and homeowners may consider refinancing. However, the key to it all is timing – and understanding the market conditions that influence individual homeowners’ decisions.
FAQs
Q: What does the Federal Reserve’s rate cut mean for mortgage rates?
A: The Federal Reserve’s rate cut has already been priced in, leading to a decline in mortgage rates. More rate cuts may lead to further declines in mortgage rates.
Q: What does this mean for homebuyers?
A: With lower mortgage rates, buyers may feel more confident in entering the market, leading to increased demand.
Q: Are higher rates coming back?
A: The Federal Reserve chair, Jerome Powell, has cautioned against expecting ultra-low interest rates, suggesting that rates may not return to their 2010s levels.
Q: Who can benefit from refinancing?
A: Some 4.7 million homeowners could refinance to a lower interest rate, saving at least 75 basis points. Others may use refinancing to capitalize on the benefits of a lower interest rate.
Q: How does the "lock-in" effect impact the market?
A: The "lock-in" effect is the reluctance of homeowners with lower interest rates to give up that benefit by selling their home. This can lead to a decrease in home sales. As rates lower, however, other factors may motivate homeowners to sell and buy a new home.
