What does September’s rate cut mean for real estate? While mortgage interest rates are not directly tied to the Fed rate, they are related. Here’s what you can expect to see as a result.
Lower Mortgage Rates & Easier Qualification
Often, one of the most immediate effects of a Fed rate cut is mortgage rates coming down. This allows consumer dollars to go further in a purchase. If the rate is lower it takes up less of the monthly payment they qualify for; meaning, more of their monthly payment can be spent on the house itself. A buyer could potentially qualify for a higher purchase price
with the same monthly payment. However, with the September rate cut, the Federal Reserve made it quite clear for a while that their plan was to take a cut. Mortgage rates had already adjusted in anticipation of the most recent cut, so we don’t expect mortgage rates to go down significantly again until the Fed takes another rate cut. Good news is that this is expected before the end of 2024.
Stronger Demand For Housing
We have many buyers sitting on the sidelines right now. Whether it’s from frustration with not finding a home to suit their needs, high interest rates or just exhaustion of the competition of the current market, the demand for housing hasn’t gone away. When rates go down, many of those buyers decide to jump in again. We see a rush into the marketplace. We saw this in early 2024 and expect this to happen again as interest rates continue to go down over the next 3-12 months. When buyers come back to the market
it can increase competition and potentially drive prices up.
Improved Housing Affordability
Because a large amount of most buyer’s mortgage payment is interest, lower mortgage rates mean you can get a lower monthly payment for the same price house. This is great for buyers. However, because of our pent up market demand for housing, often the increased competition raises prices enough to offset the gains the buyer would have had in payment
savings.
The short story is that lower mortgage rates are helpful and a small step towards a more balanced market. The Fed rate cut will easy lending across many areas which hopefully will give some relief and options to consumers. However, the only way to bring long term balance in the real estate market is more housing. Across the country and locally, we are still so far behind in new housing units compared to what the demand is. Long term balance will come from more housing at all price points.
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