Activity could pick up in the months ahead
A cooling labor market and improved inflation outlook have seen expectations of a Federal Reserve interest rate cut in September surge, with markets appearing increasingly convinced that the central bank is finally gearing up to lower rates.
Resilience throughout the national economy and stubbornness in the consumer price index (CPI) have so far convinced the Fed to stay the course in keeping its key rate in the range of 5.25% to 5.50%, its highest level for 23 years.
Still, recent signs suggest economic indicators are trending in the direction desired by the Fed – and the mortgage industry is already preparing for a potential jump in new inquiries as a possible September rate cut looms into view.
Samantha Shelton (pictured top), broker-owner at Align Lending in Michigan, told Mortgage Professional America that despite a lull in the market that’s normal at this time of year, a growing number of would-be buyers appeared to be getting ready to step off the sidelines in the months ahead.
That’s largely because of the chance of a rate cut in September, according to Shelton. “I have noticed an uptick in how many phone calls that I’ve been getting from all the people that have just been on the fence, waiting on the side, and some sellers not really wanting to move out of their high-fours, low-five [percent] mortgage,” she said. “They’re all asking me the same question: ‘How soon are rates going to lower?’”
What should brokers advise clients preparing to enter the market?
Plenty of clients are now returning to get re-preapproved in the expectation of rates falling, Shelton said, with questions about what they might be able to qualify for in the event of a rate cut and how much it could increase their purchasing power.
Homebuyers are getting a bit of relief as affordability conditions improved for the second consecutive month, according to the Mortgage Bankers Association (MBA).
— Mortgage Professional America Magazine (@MPAMagazineUS) July 25, 2024
Read more: https://t.co/kSqnJUypCa
For those buyers, putting a plan together for the homebuying process is the most important step. “We’ve been having a lot of those conversations about making sure that we’re being adequately prepared with the down payment, and don’t go open any new debt,” Shelton said.
Many of the buyers who have been spurred into action by the chance of a Fed cut in September are well aware that lower rates and an upsurge in activity could well increase competition for properties, raise the prospect of bidding wars, and see home prices begin to spiral upwards again.
That’s a reality Shelton is also underlining to her clients. “When demand exceeds supply, your prices are going to go up,” she said. “So with all of these extra people that have been looking and waiting, we’re already at a lack of inventory and it doesn’t look like that’s really changing anytime soon. We have to make sure that our buyers are going in very prepared, even though rates are [getting] lower.
“I do definitely foresee there being a surge of homebuyers coming into the market which will then only increase home prices because we’re going to go back to seeing five, six, seven offers on a house where now we’re seeing maybe two, three, four.”
Could buying now be the right move for certain borrowers?
Plenty will wait it out until they know the Fed is definitely cutting before they take the plunge. Those who are in a position to buy now, though, could see some advantages in the current market – namely, the prominence of seller concessions, which largely faded during a prolonged period of heavy bidding activity during the COVID-19 pandemic and beyond.
Ultimately, Shelton said prospects for her local market are strong looking ahead, with a possible dip in rates and a shift toward a more buyer-friendly environment suggesting a welcome degree of balance could finally be on the way.
That can only be good news for brokers and their clients – although borrowers need to be fully aware of the type of market they’re likely to face in the future. “I do think that we’re headed back into what is going to make it a more stable market with a little bit lower rates to help people have home affordability,” she said, “but also, that pool of homebuyers needs to be well educated that going in, they’re going to have to have additional funds.”
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
