The bottom line is just as the Fed has stated: It’s a complex road ahead.
Our housing market is currently a fair distance from normal with transactions at a 30-year low. Many buyers are on the sidelines, given the elevated prices and rates. Right now, even sellers are scratching their heads not knowing how much further they need to reduce their price or otherwise incentivize buyers to get their property sold.
The Federal Reserve’s cut, though small, does give some positive signaling that we could be heading the right direction, but there’s not a simple path forward to more affordable housing. I hope this article can provide some ideas about how the current and future economic shifts may benefit you in your housing moves.
Why did the Fed cut rates?
The Federal Reserve (Fed) works off a dual mandate to promote maximum employment and stable prices (aka manage inflation). While inflation continues forward at a current 2.9%, which is just above the Fed’s target, the July jobs reports that came out this in August showed significant cracks in the jobs market, which more or less forced the Fed’s hand to begin cuts in an effort to walk the tightrope of helping the jobs market while hopefully not slowing their inflation reduction objectives.
Fed Chair Jerome Powell commented that there is no “risk-free path” forward. While the Fed will need to monitor monthly economic data to make future decisions – they did potentially forecast two more cuts this year.
How does this impact mortgage rates and housing?
Mortgage rates are currently at two-year lows, with an overall improvement of approximately .5-.75% in the last 60 days. The key part to understand though is that most of this improvement happened in the weeks leading up to the actual rate cut meeting on Sept. 17. If we backtrack, the majority of the shift occurred when the weak jobs report was released in August, at which point it became fairly expected that the Fed would cut in their September meeting.
Interestingly enough, rates were flat to slightly higher after the news. I expected that many homebuyers or sellers were hoping for a more dramatic impact after the Fed announcement. The bottom line is just as the Fed has stated: It’s a complex road ahead.
Continued slowing economic data is actually helpful for interest rates as it leads into a lowered inflation outlook and can then help mortgage rates further normalize. If we do, in fact, get two additional cuts this year of the Fed funds rate then it could be anticipated that mortgage rates could also reduce, albeit it’s not directly proportional to the funds rate cuts – it could be more, could be less.
Act on Current Data
I fully appreciate it’s been a challenging market during the last 24 months, as we’ve seen very different scenarios playing out and a lot of economic shifts. While it could be tempting to continue to postpone decisions in hopes that market shifts could work to your benefit with Fed cuts in the future, we truly don’t know if those will happen, what that would actually do to the markets and when those impacts could actually be felt.
My advice is to connect with experts and make decisions on the current market data points that we know to be true – there are opportunities to be had out there right now! FBN
By Chris Hallows
For additional information or to schedule an appointment visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.
Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff. NMLS 306345 Ark-La-Tex Financial Services, LLC NMLS 2143 |Equal Housing Lender
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