Rates have plunged following the recent emergence of economic storm clouds
Amid the tremors rippling through the US economy in recent weeks, the main topic on the lips of the mortgage industry is the question of how far rates are likely to fall.
Sudden gloom in the national economic outlook, propelled in large part by weaker-than-expected jobs figures and a rising unemployment rate, helped push the average 30-year fixed mortgage rate in the US down to 6.47% last week, their lowest point for 15 months.
For Melissa Cohn (pictured top), regional vice president at William Raveis Mortgage, that decline was a long time coming, with rates likely to continue on a downward descent in the coming months. “I think that there’s been sort of an awakening that perhaps rates have remained too high for too long,” she said, “and now it’s time for the Fed to do something.
“Corporations can only bear higher rates for so long. People, if their incomes are not increasing to keep up with higher costs… will eventually run out of money and run out of credit card availability, and that just changes the whole thing.”
When will the housing market heat up?
The recent downturn in rates could improve buyer and borrower sentiment on the housing market, but it may not necessarily bring a flood of consumers off the sidelines to resume their purchasing plans.
That’s only likely, according to Cohn, when the 30-year fixed rate begins to tick solidly below 6%, and even lower for specific market segments. For sellers locked into mortgage rates between 2.5% and 4%, “the rates have to go below 5.5% for them to even consider selling and trying to move on,” she said.
Inflation in the US is expected to have experienced a modest increase in July, but this is unlikely to prevent the Federal Reserve from implementing a widely anticipated interest rate cut in September, according to analysts from Bloomberg Economics.https://t.co/vhBDYNxZ3v
— Mortgage Professional America Magazine (@MPAMagazineUS) August 12, 2024
“We have adjustable-rate options now that can be had for regular people, without having to put millions of dollars in the bank in the mid-five, 30-year fixed rates for good borrowers with good credit and a decent downpayment.”
The good news is that rates are on a definite downward trajectory, welcome news for borrowers who have long grappled with rising borrowing costs and an average mortgage rate stubbornly floating around the 7% mark.
That’s highly dependent on how economic indicators play out – but the days of consistently spiking rates appear to be over for now, according to Cohn. “The trajectory looking ahead is just mostly down with maybe a few upticks here and there,” she said.
“We’ll get a good data point, we’ll get a bad data point. And I think we’re just going to be on this little rollercoaster with a general… downward trend, probably over the course of the next two years.”
Is now the time for buyers to re-enter the housing market?
For a buyer considering stepping up their plans to purchase a home, it may be tempting to wait until rates have plunged even further to improve affordability and trim monthly costs. Still, the fact that home prices are likely to start rising again once competition heats up means now could be the best time to buy if budgets allow it, according to Cohn.
“On a $1 million mortgage if you’re paying a rate that’s a full percentage point higher, $10,000 a year, [when] rates come down that full percentage point it’s quite likely that that house is going to cost more [to buy] than that additional $10,000,” she said.
“So I think people need to look to buy now to get a better price and just know whatever they take that they put themselves in a position with the ability to refinance.”
For now, there remains little clarity on whether the US economy is likely to recover or continue flagging throughout the remainder of the year. Ahead of an expected consumer price index (CPI) update today, traders remained split on economic prospects, with significant betting swings on Wall Street suggesting further volatility is likely ahead.
The Federal Reserve is next set to meet on interest rates on September 17-18 – and there’s no consensus among traders on its likely course of action, with expectations continuing to oscillate between a 25-basis-point cut and a larger move of 50 basis points to stir the economy.
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