September 23, 2024
Mortgage rates have been steadily dropping over the past few months, and with the Federal Reserve's recent rate cut of 50 basis points, the market is buzzing with questions. What does this significant cut mean for homebuyers, sellers, and the broader housing market? Let’s break down the key points and help you understand what to expect as we head into the final months of 2024.
WHY ARE MORTGAGE RATES FALLING?
Despite the Fed just now making its first rate cut in over four years, mortgage rates have already been dropping since July 2024. Why? The answer lies in the bond market, which plays a crucial role in determining mortgage rates. In particular, the 10-year Treasury yield acts as a key benchmark for lenders pricing home loans. Because the bond market tends to anticipate future economic trends, it had already priced in these anticipated rate cuts, causing mortgage rates to fall before the Fed even made its move.
Sam Khater, Chief Economist at Freddie Mac, notes, "Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but we expect rates to fall further, sparking more housing activity."
THE NUMBERS: WHERE ARE WE NOW?
As of September 19, 2024, the 30-year fixed-rate mortgage (FRM) averaged 6.09%, down from last week's 6.20%. A year ago, that same rate was at 7.19%, so we’re seeing nearly a full percentage point drop. The 15-year FRM followed suit, averaging 5.15%, down from 5.27% last week and well below last year’s rate of 6.54%.
THE FED'S ROLE: WILL RATES DROP FURTHER?
While the Fed’s recent 50 basis point cut is significant, much of its impact on mortgage rates had already been anticipated by the bond market. However, the potential for additional cuts, along with the Fed’s focus on supporting a healthy labor market, suggests that rates could continue to decline into 2025.
Federal Reserve Chairman Jerome Powell indicated that the Fed’s funds rate may drop another 0.5% by the end of 2024, with further reductions totaling 1% by the end of 2025. This signals a more gradual approach to rate cuts moving forward.
Realtor.com’s Senior Economist, Ralph McLaughlin, emphasized this shift, noting, “Over the past month, we’ve seen a 180-degree change in market expectations. Chairman Powell made it clear that the FOMC believes the fight against inflation is over, and their primary concern now is maintaining a strong labor market.”
In short, while the market has already factored in much of the recent Fed cut, there is still room for mortgage rates to fall. Some experts predict rates will hover between 6% and 6.2% for the rest of the year, potentially dropping into the high 5% range by next spring.
WHAT THIS MEANS FOR BUYERS
For buyers, this is a period of opportunity. With the 30-year fixed-rate mortgage rate sitting at 6.09%, it’s the lowest it has been since early February 2023. Buyers who have been hesitant may now find that their purchasing power has increased, allowing them to secure better loan terms or afford homes that were previously out of reach.
Today's mortgage rates also offer significant savings for homebuyers compared to last year. With a 30-year mortgage now averaging more than a full percentage point lower than the 7.19% rate from a year ago, a buyer can save $582 per month and over $200,000 in interest over the life of an $800,000 loan compared to just one year ago. This dramatic drop in rates not only reduces monthly payments but also increases long-term affordability, making now a prime time for buyers to secure favorable terms and invest in their future.
WHAT THIS MEANS FOR SELLERS
Sellers, on the other hand, will likely see increased buyer demand as rates fall. Lower borrowing costs could bring more potential buyers back into the market, especially after the previous period of high rates. For sellers looking to time the market, listing in the coming months could be a smart move as rates stabilize and demand rises.
Believe it or not, we've already started seeing some multiple offer situations in recent weeks in Orlando's most desirable neighborhoods where inventory remains low.
Owners of vacation homes and short term rentals where the market has been slower and inventory has been high can expect an uptick in activity and demand as we approach the holidays going into 2025.
LOOKING AHEAD: WHAT TO EXPECT
As mortgage rates continue their downward trend, we’re not expecting any dramatic drops in the near term. Experts predict that the 30-year fixed rate will hover between 6% and 6.2% for the remainder of 2024, potentially dipping into the high 5% range by next year. The Fed’s cautious approach to future rate cuts indicates that we’re likely in for a slow and steady easing rather than a sharp decline.
Ultimately, the decision to act in today’s market depends on your unique goals as a buyer or seller. If you're a strong buyer with a significant down payment, you may have the flexibility to wait for rates to drop further, though you’ll likely face more competition as others do the same. On the other hand, if you're relying on seller concessions or looking for a more balanced negotiating environment, locking in a deal now, before increased competition heats up, could be the smarter move. Whether you're buying or selling, it’s crucial to weigh your financial position and timing to make the best decision for your circumstances.
CONTACT US today to discuss further and determine the best course of action for your personal goals.