The Federal Reserve recently made headlines with its decision to cut rates by half a percentage point, a move signaling the start of six to eight rounds of further rate cuts expected to continue into 2025. With the next rate cut anticipated after the Presidential election, this trend reflects cooling inflation and slower job growth. While the Fed is taking action, how will these cuts impact the housing market and, more specifically, mortgage rates?
Mortgage Rates Have Already Adjusted
Mortgage rates are always a hot topic for home buyers, and it’s essential to understand that while the Fed’s rate cuts influence the broader economy, they don’t directly control mortgage rates. In fact, the 30-year mortgage rate has already dropped by 150 basis points since the start of the year. This means mortgage rates have largely priced in the Fed’s future actions.
What does this mean for prospective home buyers? While more rate cuts are on the horizon, any further decrease in mortgage rates will likely be minimal. And despite lower rates, the huge federal budget deficit could reduce the amount of capital available for mortgage lending, further limiting the impact of Fed cuts.
Increased Purchasing Power for Home buyers
The good news is that current mortgage rates are much lower than they were in the spring, providing a significant boost to home buyers’ purchasing power. For those budgeting around $2,000 per month for a mortgage payment, the decrease in rates has increased their potential buying power by roughly $50,000.
This adjustment could bring new buyers into the market, especially those who were previously priced out due to higher rates earlier this year. It’s an excellent opportunity for those looking to buy a home, as lower rates can make home ownership more accessible without increasing monthly expenses.
What to Expect Going Forward
With more rate cuts anticipated, some home buyers may hold out for even lower rates. However, it’s important to recognize that the remaining impact on mortgage rates is expected to be limited. The combination of future Fed actions and the federal government’s large borrowing needs will likely keep rates from dropping much further.
If you’ve been waiting for a window to purchase a home, now may be the time to take action. Mortgage rates are currently at more favorable levels than earlier in the year, and the potential savings from these lower rates may be as good as they get.
The Federal Reserve’s ongoing rate cuts are part of a larger strategy to combat inflation and stabilize the economy. While these cuts have indirectly contributed to lower mortgage rates, future cuts may have less of an effect due to economic factors like the federal budget deficit. With mortgage rates already providing an advantage for buyers, now is an excellent time to capitalize on the increased purchasing power and re-enter the housing market.
Whether you’re a first-time home buyer or looking to upgrade, these favorable rates could make a significant difference in your home search. Keep an eye on economic conditions…
https://www.nar.realtor/blogs/economists-outlook/instant-reaction-fed-rate-cut-september-18-2024
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