What the Fed’s Rate Cutting Plans Mean for the Housing Market
On Wednesday, the
Buyers' wait is over
Generally, when rates fall, buyer demand rises — but that didn't happen as mortgage rates dropped this summer, according to
According to a recent
At the press conference following the
"
Even if rates don't rise, lower mortgage rates can only go so far in the face of consistently high prices. In August, the median price of an existing home was
For buyers, it's going to come down to timing. Not timing the market, but whether it's the right time for you. If you're ready to buy and find an affordable home that'll work for you, take the plunge.
More homeowners could save with a refinance
Folks who bought homes at higher mortgage rates have also been anxiously awaiting a rate cut. And with mortgage rates already at lower levels, some homeowners could benefit from refinancing. With 30-year interest rates near 6%, roughly 4.7 million homeowners could lower their interest rates at least 75 basis points, according to data from real estate tech firm ICE Mortgage Technology.
The usual rate-and-term refi math is to figure out how much refinancing will cost you, which is generally 2% to 6% of the loan amount, and compare that with how much you'll save on a monthly basis with that new interest rate. Dividing the cost of the refi by the monthly savings tells you the number of months — or more often, years — it'll take for you to break even and see real savings.
Homeowners considering a refinance should think about how this math works for their budgets and goals. "Be fully aware of where your break-even point is and ask yourself that question of how long do you think you might be in a property," says
The key to rate lock in
There's an even larger number of homeowners on the opposite end of the mortgage rate scale, with mortgage rates that are well below even today's lower rates. As of the second quarter of this year, more than half of
This gap between borrowers' rates and current rates creates a "lock in" effect, where homeowners are reluctant — or in some cases, can't afford — to give up that lower interest rate by selling their home. FHFA researchers estimate that for every percentage point that prevailing rates exceed a homeowner's mortgage rate, there's a more than 18% decrease in the probability that the owner will sell.
"Right now, we're in a market for have-to-move," Pareja says, noting that major and sometimes unforeseeable life events, like divorce or a job loss, will force home sales regardless of interest rates. But as rates lower, other factors like wanting an upgrade, or a new location or more (or less) space may become strong enough motivators to sell a home. "I think there's a threshold that people are going to, and that threshold will be very different for each household," Zhao says. Current homeowners may need to decide whether the perks of a new place outweigh a higher monthly mortgage payment. For some, finding a home that's a better fit will be well worth the price.
More From NerdWalletCompare Current Mortgage RatesIs It a Good Time to Buy a House?Check Mortgage Refinance Rates
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