PARTNERS VOICE | MARKET FORECAST
September 2024

Last month we predicted a strong fall for the housing market, and the latest numbers show that we are definitely headed in that direction. In August, mortgage rates dropped a full percentage point, and both buyers and sellers are gaining confidence to make a move after months on the sidelines. Let's take a look at what is driving this shift.

Why Mortgage Rates Dropped

According to Freddie Mac, mortgage rates have fallen by more than a percentage point from their October 2023 peak of 7.79%. After lingering at 7.5% in April, mortgage rates dropped to 6.34% in August, putting the number below 6.5% for the first time since May 2023. But if the Fed hasn't cut interest rates yet this year, why the drop?

According to the CME FedWatch Tool, a measure of market sentiment, the chances of an interest rate cut in September are all but certain. Because the change in mortgage rates is based on investor speculation about what the Fed will do, markets have already priced in a rate cut of at least a quarter percentage point at each of the three remaining Fed meetings this year.

Although inflation dropped below 3% for the first time since 2021, the August jobs report was disappointing (114,000 jobs created in July of 185,000 expected). Per Lu Liu, a professor at the Wharton School at the University of Pennsylvania, "That jobs report made markets reevaluate the path of future interest rate cuts. Because the mortgage rates are priced off of current treasury rates, the treasury rates have already incorporated these expectations for future rate cuts."


Will Rates Drop Further?

Federal Reserve Chair Jerome Powell has expressed confidence about the trajectory of the economy, and said that easing inflation data is raising confidence that the central bank will cut rates soon. As the federal funds short-term rate has remained steady since July 2023, speculation is rising that the Fed may cut even beyond its traditional quarter point reductions. However, even a 0.5% Fed rate cut doesn't mean that long-term, 30-year mortgage rates will drop by the same amount. Those rates move ahead of the Fed, and September's potential cut is already baked into today's mortgage rates.

Our Advice

The big question is, should you buy now or wait? The fall housing market is heating up, and unlike the past few years, interest rates are going to be lower in the second half than the first half of 2024. Pending home sales are growing, and according to National Association of Realtors Chief Economist Lawrence Yun, the 1% drop in mortgage rates could save new home buyers more than $300 per month.

 

So our best advice is to purchase a home when it makes sense for you, your budget, and your timeline. Mortgage rates are moving in the right direction, but nothing is guaranteed in these unprecedented, unpredictable times. Take a thorough look around and you may find the right home for you at an affordable rate right now. And make sure to reach out to us if you have specific questions - we're here to help you navigate the process!

 

 

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