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On Sept. 18, 2024, the Federal Reserve implemented a 0.5% rate cut to support growth and stabilize the market in response to evolving economic conditions.
This Fed rate cut is expected to ripple across various sectors, especially housing, as mortgage rates and borrowing costs are closely tied to Fed policies.
Understanding how the Fed rate cut affects mortgage rates and the housing market is critical for homeowners considering refinancing and those looking to buy a home.
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What is happening with the housing market today?
A continuing mix of challenges and opportunities characterizes the U.S. housing market in 2024.
- Home prices continue to rise, with the average home value reaching $362,481, up 3.3% over the past year.
- Inventory remains tight, with only a three-month supply nationally, half of what’s considered a balanced market—this scarcity is particularly acute in the entry-level segment, fueling competition among buyers and investors.
- Mortgage rates, while lower than their recent peaks, have still been relatively high up to this point, impacting affordability.
- Despite these challenges, homes are still selling quickly, with the median time to pending at 15 days.
It’s highly likely the market’s future trajectory will be influenced by the Fed rate cut announced today and (as always) overall economic conditions.
Do mortgages go down when the Fed cuts rates?
When the Federal Reserve cuts interest rates, it indirectly impacts mortgage rates.
While mortgage rates are more closely tied to the 10-year Treasury yield and economic conditions, Fed rate cuts generally signal lower borrowing costs, putting downward pressure on mortgage rates.
Mortgage rates often decline in anticipation of Fed moves, as seen with the average 30-year rate dropping to around 6.2%—the lowest it’s been since February 2023.
However, declines may be gradual, influenced by factors like inflation and market dynamics.
Lower rates can offer refinancing opportunities and improve buyers’ affordability, though increased demand could raise home prices and increase competition in the market.
What do Fed rate cuts mean for homebuyers in 2024?
Fed rate cuts in 2024 are likely to have significant implications for homebuyers.
The recent 50 basis point cut is expected to put downward pressure on mortgage rates, which have already begun to decline.
Lower mortgage rates could improve affordability for potential buyers, making monthly payments more manageable and potentially allowing them to qualify for larger loans.
However, this increased affordability may attract more buyers, intensifying competition for available homes.
While lower rates are generally positive for buyers, they may not immediately increase the housing supply.
The “lock-in effect” could persist, with some homeowners still hesitant to sell their properties with low-rate mortgages.
Additionally, increased demand could drive up home prices, potentially offsetting some of the benefits of lower rates.
Ultimately, while Fed rate cuts may create opportunities for homebuyers, they should be prepared for a potentially competitive market and consider acting quickly when favorable rates become available from a lender.
What are experts predicting for the housing market?
Experts predict a relatively stable U.S. housing market, with no crash anticipated in the coming years. Home prices are expected to continue rising, seemingly at a slower pace.
- Fannie Mae forecasts a 6.1% year-over-year increase in home prices by the end of 2024, while the Mortgage Bankers Association projects a 4.1% rise.
- NAR’s chief economist, Lawrence Yun, predicts low- to mid-single-digit annual appreciation over the next five years.
A housing market crash is unlikely despite high prices due to low inventory and strict lending standards.
Mortgage rates are expected to decrease throughout 2024, potentially improving affordability.
However, the market will likely remain competitive as lower rates could increase demand, keeping home prices elevated.
Is now a good time to buy a home?
Buying a home always depends on individual circumstances, but the Fed’s rate cut could make homeownership more attainable for some buyers.
Buyers might find more favorable terms with mortgage rates potentially declining in the coming months. However, it’s important to consider the broader market dynamics:
- Home prices remain high: Despite the potential for lower mortgage rates, high home prices could pose a challenge, especially in regions with tight inventory.
- Long-term perspective: Buyers who plan to stay in their homes long-term may benefit from locking in a lower rate, even if home prices remain elevated.
Ultimately, now could be a good time to buy for those who are financially prepared and able to secure a mortgage with a favorable rate.
Buyers should work with their lenders to monitor rate movements closely and be ready to act when the time is right.
Is now a good time to refinance a mortgage?
Now could be an excellent time to refinance for homeowners, especially those with higher-rate mortgages.
The Fed rate cut will likely exert downward pressure on mortgage rates, which could lead to significant savings for homeowners who refinance at a lower rate. Refinancing could help:
- Lower monthly payments: By attaining a lower interest rate, homeowners can translate that into lower monthly mortgage payments—freeing up cash for other financial goals.
- Reduce overall interest costs: Over the life of a loan, refinancing at a lower rate could save thousands of dollars in interest payments.
- Eliminate PMI: Homeowners with enough equity may be able to refinance and eliminate their private mortgage insurance (PMI), further reducing monthly expenses.
However, refinancing isn’t without its costs. Homeowners should carefully consider the closing costs and fees associated with refinancing and calculate the break-even point to ensure that the long-term savings outweigh the upfront costs.
The Fed rate cut: What it means for you
The Sept. 18, 2024, Fed rate cut marks an important moment for the housing market.
While the immediate effects on mortgage rates may not be dramatic, the long-term outlook is promising for homeowners and prospective buyers.
Refinancing could offer significant savings for homeowners, particularly those with high-rate mortgages.
The rate cut could provide buyers a path to more affordable borrowing soon.
As always, it’s important to stay informed, monitor market conditions, and work with mortgage professionals like MyPerfectMortgage.com.
We connect you with the right lenders so that you can make the best financial decision based on your circumstances.
Reach out to MyPerfectMortgage.com today to find your best mortgage solution.
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
