How the Federal Reserve’s Next Move Could Impact the Housing Market

<article class="post-1181882 post type-post status-publish format-standard has-post-thumbnail hentry" id="post-1181882"><span class="entry-date">September 4, 2024</span><div class="entry-header center-block text-center"><h1 class="entry-title">How the Federal Reserve’s Next Move Could Impact the Housing Market</h1><div class="shareBlock"><div class="shareTitle">Share</div><div class="shareIcons"><a aria-label="Twitter Share Link" class="twitter solid display-inline-block" data-tracking="Post,Social Post Link Clicked,Twitter" href="http://twitter.com/share?text=How+the+Federal+Reserve%E2%80%99s+Next+Move+Could+Impact+the+Housing+Market&amp;url=https%3A%2F%2Fgilliggroup.com%2Fblog%2Fhow-the-federal-reserves-next-move-could-impact-the-housing-market%2F" target="_blank"><span class="force-hidden">Twitter</span></a>
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</div></div><div class="post-tax post-category"><span></span><a href="../category/realtor-blog/index.html" rel="tag">Realtor Blog</a></div><div class="post-tax post-post_tag"></div></div><div class="entry-content"><div><img alt="How the Federal Reserve’s Next Move Could Impact the Housing Market Simplifying The Market" decoding="async" loading="lazy" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240830/20240904-How-the-Federal-Reserve-s-Next-Move-Could-Impact-the-Housing-Market-original.png" style="display: block; margin-bottom: 5px; clear: both; max-width: 100%;" width=""/>
<p>Now that it’s September, all eyes are on the <em>Federal Reserve </em>(the Fed). The overwhelming expectation is that they’ll cut the Federal Funds Rate at their upcoming meeting, driven primarily by recent signs that <a href="https://www.investing.com/economic-calendar/core-pce-price-index-905" rel="noopener noreferrer" target="_blank">inflation is cooling</a>, and the job market is <a href="https://www.bls.gov/news.release/empsit.nr0.htm" rel="noopener noreferrer" target="_blank">slowing down</a>. Mark Zandi, Chief Economist at <em>Moody’s Analytics</em>, <a href="https://apnews.com/article/inflation-economy-federal-reserve-interest-rates-04d2877f47f3913acc2f992d8ef1581b" rel="noopener noreferrer" target="_blank">said</a>:</p>
<blockquote><p><em>“They’re ready to cut, just as long as we don’t get an inflation surprise between now and September, which we won’t.”</em></p></blockquote>
<p>But what does this mean for the housing market, and more importantly, for you as a potential homebuyer or <a href="https://www.simplifyingthemarket.com/2024/08/21/the-number-one-mistake-sellers-are-making-overpricing-their-house/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">seller</a>?</p>
<h4><strong>Why a Federal Funds Rate Cut Matters</strong></h4>
<p>The Federal Funds Rate is one of the key factors that influences <a href="https://www.simplifyingthemarket.com/2024/08/19/how-mortgage-rate-changes-impact-your-homebuying-power/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">mortgage rates</a> – things like the economy, geopolitical uncertainty, and more also have an impact.</p>
<p>When the Fed cuts the Federal Funds Rate, it signals what’s happening in the broader economy, and mortgage rates tend to respond. While a single rate cut might not lead to a dramatic drop in mortgage rates, it could contribute to the gradual decline that’s already happening.</p>
<p>As Mike Fratantoni, Chief Economist at the <em>Mortgage Bankers Association</em> (MBA), <a href="https://www.bankrate.com/mortgages/will-fed-cut-lower-mortgage-rates-enough/" rel="noopener noreferrer" target="_blank">points out</a>:</p>
<blockquote><p><em>“Once the Fed kicks off a rate-cutting cycle, we do expect that mortgage rates will move somewhat lower.”</em></p></blockquote>
<p>And any upcoming Federal Funds Rate cut likely won’t be a one-time event. Lawrence Yun, Chief Economist at the <em>National Association of Realtors</em> (NAR), <a href="https://www.newsnationnow.com/business/your-money/inflation-fed-rate-cut/" rel="noopener noreferrer" target="_blank">says</a>:</p>
<blockquote><p><em>“Generally, the rate-cutting cycle is not one-and-done. Six to eight rounds of rate cuts all through 2025 look likely.”</em></p></blockquote>
<h4><strong>The Projected Impact on Mortgage Rates</strong></h4>
<p>Here’s what experts in the industry project for mortgage rates through 2025. One contributing factor to this ongoing gradual decline is the anticipated cuts from the Fed. The graph below shows the latest forecasts from <a href="https://www.fanniemae.com/media/53061/display" rel="noopener noreferrer" target="_blank"><em>Fannie Mae</em></a>, <a href="https://img03.en25.com/Web/MortgageBankersAssociation/%7B30b1b462-78c5-4af2-987d-dc59416584a0%7D_Mortgage_Finance_Forecast_Aug_2024.pdf" rel="noopener noreferrer" target="_blank"><em>MBA</em></a>, <a href="https://cdn.nar.realtor/sites/default/files/documents/forecast-q2-2024-us-economic-outlook-06-27-2024.pdf" rel="noopener noreferrer" target="_blank"><em>NAR</em></a>, and <a href="https://wellsfargo.bluematrix.com/links2/html/777ed9e3-4b81-4f27-a2fa-55ac6a68f8c6" rel="noopener noreferrer" target="_blank"><em>Wells Fargo</em></a> (<em>see graph below</em>):</p>
<p><a href="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240830/20240904-Mortgage-Rates-and-Projections-original.png" rel="noopener noreferrer" target="_blank"><img alt="No Caption Received" decoding="async" src="https://files.keepingcurrentmatters.com/KeepingCurrentMatters/content/images/20240830/20240904-Mortgage-Rates-and-Projections-original.png"/></a>So, with recent improvements in inflation and signs of a cooling job market, a Federal Funds Rate cut is likely to lead to a moderate decline in mortgage rates (<em>shown in the dotted lines</em>). Here are two big reasons why that’s good news for both buyers and sellers:</p>
<p><strong>1. It Helps Alleviate the Lock-In Effect</strong></p>
<p>For current homeowners, lower mortgage rates could help ease the lock-in effect. That’s where people feel stuck within their current home because today’s rates are higher than what they locked in when they bought their current house.</p>
<p>If the fear of losing your low-rate mortgage and facing higher costs has kept you out of the market, a slight reduction in rates could make <a href="https://www.simplifyingthemarket.com/2024/08/09/home-inspections-for-sellers-how-to-prepare/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">selling</a> a bit more attractive again. However, this isn’t expected to bring a flood of sellers to the market, as many homeowners may still be cautious about giving up their existing mortgage rate.</p>
<p><strong>2. It Should Boost Buyer Activity</strong></p>
<p>For potential homebuyers, any drop in mortgage rates will provide a more inviting housing market. Lower mortgage rates can reduce the overall cost of homeownership, making it more feasible for you if you’ve been waiting to <a href="https://www.simplifyingthemarket.com/2024/08/08/where-will-you-go-after-you-sell/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">make a move</a>.</p>
<h4><strong>What Should You Do?</strong></h4>
<p>While a Federal Funds Rate cut is not expected to lead to drastically lower <a href="https://www.simplifyingthemarket.com/2024/08/07/mortgage-rates-down-a-full-percent-from-recent-high/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">mortgage rates</a>, it will likely contribute to the gradual decrease that’s already happening.</p>
<p>And while the anticipated rate cut represents a positive shift for the future of the housing market, it’s important to consider your <a href="https://www.simplifyingthemarket.com/2024/08/16/3-reasons-to-move-in-todays-shifting-market/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">options right now</a>. Jacob Channel, Senior Economist at <em>LendingTree</em>, <a href="https://www.cnbc.com/2024/07/29/how-to-know-if-you-should-refinance-your-mortgage-or-buy-a-house.html" rel="noopener noreferrer" target="_blank">sums it up</a> well:</p>
<blockquote><p><em>“Timing the market is basically impossible. 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.”</em></p></blockquote>
<h3>Bottom Line</h3>
<p>The expected Federal Funds Rate cut, driven by improving inflation and slower job growth, is likely to have a positive, albeit gradual, impact on mortgage rates. That could help <a href="https://www.simplifyingthemarket.com/2024/08/13/is-affordability-starting-to-improve/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">unlock opportunities</a> for you. When you’re ready, connect with a local <a href="https://www.simplifyingthemarket.com/2024/08/20/how-to-choose-a-great-local-real-estate-agent/?a=712984-fa409495d5d70154d03a25e81e9540e2" rel="noopener noreferrer" target="_blank">real estate agent</a> so you’re prepared to take action.</p>
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