For the first time in years, the Federal Reserve is poised to make cuts to key interest rates this fall, which may influence the direction of mortgage rates and stir up the housing market.
The Fed meeting is this week, and experts aren’t expecting interest rates to see any change, though September still seems like the target month for the central bank to roll back rates.
According to the CME’s FedWatch of futures market pricing, there is only a 6% chance of a rate cut coming from the Fed’s upcoming meeting. However, a quarter-point reduction is far more likely in September, November, and December.
If a rate cut comes, it will be the first since 2020 and could spark a meaningful difference in what homebuyers pay and sellers make on their properties.
It is important for prospective buyers and sellers to know that the first-rate cut is almost entirely priced into the market, meaning mortgage rates aren’t going to see much change if a cut is made official, according to Chen Zhao, the economic research lead at Redfin.
“A lot of these rate cuts are already priced in,” Zhao shared with CNBC.
According to data from Freddie Mac, the current 30-year fixed mortgage hit 6.78% on July 25, down from a high of 7.22% on May 2.
As for the question on everyone’s mind — when is the best time to buy or sell — Zhao says several outcomes are possible.
While lower rates can sometimes result in lower costs for buyers on a budget, it could also mean that more buyers will enter the market, resulting in high prices if demand outpaces supply, Zhao said.
Zaho says that not having enough available homes on the market can “offset the relief you get from mortgage rates.”
Senior economist at LendingTree, Jacob Channel, agreed with Zhao’s assessment, telling CNBC that what exactly will happen in the housing market “is up in the air.”
“Timing the market is basically impossible,” Channel said. “If you’re always waiting for perfect market conditions, you’re going to be waiting forever. Buy now only if it’s a good idea for you.”
The housing market has been a sore point for Americans for some time now, with many being priced out of single-family starter homes in major metropolitan areas.
A report from Zillow released this week has found that while the average entry-level home in the country costs around $200,000, in 237 cities, that would barely cover the down payment, as $1 million is needed to buy a starter home.
The report noted that half of all US states have at least one city where a relatively modest residence is priced at least $1 million. Some states have even more, with California topping out at 117, New York at 31, New Jersey at 21, and Florida and Massachusetts each having 11, Zillow reported.