Until September 18th 2024, one would’ve had to go all the way back to the early days of the COVID-19 pandemic to find the last time the Federal Reserve slashed its benchmark rate.
Following its sixth meeting of the year, the Fed made its first rate cut since March 2020. The central bank surprised economists and policy experts by opting for a half-percentage-point cut, double the more typical one-quarter of a percentage point. Following the decision, Fed Chair Jerome Powell said the more aggressive rate cut was a sign of the central bank’s strong commitment to its goal of maximum employment and stable prices.
We share how this decision could impact mortgages as well as provide tips for buyers and sellers in a changing market.
Impact on mortgages
The Fed’s rate decisions often align with mortgage interest rates. A decrease in the benchmark rate often precedes a decrease in mortgage rates. Conversely, when the key rate is raised, rates typically follow suit.
The Fed’s dot plot, which reflects where the central bank’s policymakers expect the benchmark rate to go during the next few years, indicated that more cuts are coming. The dot plot showed that another half-percentage-point reduction is expected this year followed by several cuts that equal a full percentage-point by the end of 2025. Of course, these forecasts are subject to change based on economic information.
Following the central bank’s announcement, several industry leaders revised their rate forecasts for the remainder of the year and next:
- BrightMLS: Rates will hover below 6.4% through 2024. “I’m expecting that average rates on a 30-year fixed-rate mortgage will still be between 6.2% and 6.4% by the fourth quarter,” said BrightMLS Chief Economist Lisa Sturtevant.
- Fannie Mae: Rates will average 6.2% in the fourth quarter. The mortgage giant is predicting that the 30-year fixed rate will hit 6.2% in Q4 before averaging 6% in the first quarter of 2025.
- Freddie Mac: Rates will remain elevated throughout the year. Despite the benchmark rate reduction, the GSE projected rates to experience only steady declines in the months ahead.
- Mortgage Bankers Association (MBA): Rates will hit 6.5%. MBA economists expect rates to average 6.5% in the fourth quarter and then trend slightly downward in the new year.
Robin Rothstein, “Mortgage rates forecast for 2024: Experts predict how much rates will drop,” Forbes Advisor, last updated September 24, 2024.
Tips for buyers and sellers
Whether our clients plan on buying a new home or selling their existing one (or both), we have tips to help them navigate our changing housing market.
Helpful information for buyers
Secure a pre-approval. This important first step gives a buyer an estimate of how much home they can comfortably afford. Additionally, a pre-approval gets a buyer to their closing day quicker since a significant portion of the loan process paperwork has been completed.
Research the market—and know what is available. Buyers should research local amenities and trends, obtain property values in the area, and examine historical housing data. They should also attend as many open houses and online virtual tours as possible to determine the fair market values of homes in their desired area.
Pay attention to days on the market. The longer a property has been available, the more negotiating power a buyer has. Even if the buyer does not request a price reduction, they can ask for contingencies, concessions, or repairs.
Be flexible with closing. Closing date flexibility can make a buyer’s offer more attractive than others, especially in a market that’s expected to be more competitive due to falling rates. Being flexible can work in a buyer’s favor if competing offers have hard deadlines.
Know when to walk away. If you have already made your best offer and it was not enough, you may not have room in your budget for another round of bidding. This may be a sign that it’s time to move on from a property.
Helpful information for sellers
Understand the current market. Falling interest rates are expected to lure more buyers to the market, bringing in more competition for an already limited supply of inventory. A seller needs to be prepared for the possibility of multiple offers as well as a quicker selling timeline.
Price it right. Be sure the home is priced competitively. Overpricing will lead to more time spent on the market. Also, a seller should set a timeline for a price reduction in the event the property does not sell. The amount can be determined later since it may be based on feedback received during open houses and home tours.
Declutter and depersonalize. A seller should clear clutter, remove family photographs and mementos, stage furniture, and organize closets and storage areas. And once the property is listed, they should keep their home in “open house” condition since a showing can be scheduled at any time.
Upgrade—but don’t over-upgrade. Completing a major home upgrade right before listing is not always the best idea. In many cases, small improvements are the ones that pay off best. These include painting a room, hanging new curtains, replacing faucets and cabinet hardware, upgrading lighting, and professionally cleaning carpeting and hard wood floors.
Don’t let emotions get in the way. A seller should be advised to separate themselves emotionally from their property and to always remember that the selling process is a business transaction.
I hope your clients find this information to be helpful. Here’s to a successful and busy fall market for everyone.
Disclosures:
The content of this page is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.