Mortgage rates are down nearly 1% since July in anticipation of this week’s .500% Fed rate cut and we’re holding steady with only a small 5bps shift upward causing nominal disruptions to our momentum.
As the mortgage secondary markets anticipated the September rate action based on comments from the Fed including a foreshadowing of additional cuts before year end, down came rates, finally!
Key Takeaway
If you’re planning or advising others on timing a home purchase around rates and home prices, listen to the Fed comments and watch the economic projections rather than awaiting the actual announcement.
Same holds true on refinancing, make your lender your partner and enlist them to watch the market for you. Mortgage rates took the deepest dips in advance of this 50 bps Federally Funds rate cut with September 18 providing negligible change in our market.
5% Glimpse
Rates are still in the 6’s for most borrowers, though not for all. I locked a client just under 5% with one discount point earlier this week, prior to the announcement.
We “captured the moment” so to speak, which highlights why optimizing your mortgage rate must include being ready and in tight agreement with your lender so they can push go on your behalf at the optimum time. Join my rate watch list and I’ll do the same for you, details here.
To follow is a quick summary of the announcement with some insider scoop on how to take advantage of today’s housing market.
Housing Market
Some positive data is emerging in the housing market with our national inventory level at 1.35M homes and active listings at 909K. The difference in those two numbers reflects approximately 33% of the market currently under contract.
Supply Pressure on Home Prices Easing
Home prices moderated through July at a 4.3% year over year increase. While inventory remains well below the required 2M+ needed, it’s improved over the past 24 months and should continue that trend as rates ease and more existing homes come on the market.
Completion data and builder starts for multifamily are both improving easing the inflationary pressure higher rents have inflicted. Core Logic reported rent increases dropped in July from 2.9% to 2.8% year over year.
All these statistics support a housing market in recovery. Assuming rates trend as projected, activity will return without a spike in home shoppers, keeping demand and home prices in check.
Mortgage Rates
Additional actions by the Fed will bolster market confidence of a strong economy and support the continued drift downward in mortgage rates.
Current projections are recapped below by the industry experts at MBS Highway based on the Fed Open Market Committee (FOMC) voting data, also known as the Dot Plot. If these hold true, we should see continued improvement in 30-year fixed mortgage rates through the end of the year and throughout 2025.
SEP Insights
- Assuming we proceed on course we will see continued improvement in mortgage rates, through next year where projections have us somewhere under 6%.
- All eyes remain on Core PCE (Inflation) and Unemployment
- Unemployment expected to rise to 4.4% making 4.5% the indicator of a potential recession and a higher probability mortgage rates would decline faster
- Any trends back up in Core PCE, cuts will stop, and rate drops will stall
- Balance sheet run off (the Fed liquidating assets back into the financial markets) is slowing the pace of rate drops
The Wild Card
A pending strike of the Longshoremen’s Association’s 45K workers would interrupt supply chain and throw a short-term wrench in our recovery gains potentially rekindling some inflation. October 1 is our next date to watch. If you’re on the fence about a refinance, here’s your latest wild card.
Wait or Buy
Rates are not dropping quickly, and home prices remain strong. The almost 1% improvement in 30-year fixed mortgage rates is a huge leap in a short period and will likely settle into trends of up and down as all the economic factors continue to improve.
Forecasts don’t indicate another full percent even by the end of next year. At an annual home price growth rate of 4.3%, waiting one year to purchase will add $19,350 to the list price of a $450,000 home. You lose buying power by waiting in most cases. A 1% improvement in mortgage rate won’t offset the continued upward movement of home prices. Want a lower rate, add a discount point and buy it down.
Factor four things into timing a refinance:
- What is your target monthly savings? Determine the rate that gets you there.
- How long do you plan to stay in your home to recoup the finance charges associated with me and my paperwork?
- Could debt consolidation improve credit scores and monthly cash flow enough to make now the right time?
- An underwritten pre-approval, the teaser rate is too good to be true
For more ideas, check out some of our creative financing solutions to make homeownership easier and more affordable:
The Advantages of Buy Before You Sell
