The Federal Reserve’s recent decision to implement a significant interest rate cut has offered a glimmer of hope to home shoppers, the Associated Press reports.
However, potential homebuyers and those looking to refinance should manage their expectations regarding a substantial decline in mortgage rates.
Although the Fed does not directly set mortgage rates, its policy adjustments typically influence them. The anticipated cut was already factored into mortgage rates, which have been gradually decreasing since July. The current average rate for a 30-year mortgage stands at 6.09%, a drop from its peak of 7.22% earlier this year.
Danielle Hale, chief economist at Realtor.com, noted that while this cut might provide some relief, the most significant easing has likely already occurred in 2023. She warned that mortgage rates could experience fluctuations, possibly rising before settling back down.
The average mortgage rate has seen a dramatic rise over the past few years, reaching a 23-year high of 7.8% last October. This increase coincided with the Fed’s efforts to combat inflation. Although recent declines have slightly improved affordability, many prospective buyers still face challenges due to soaring home prices, which have increased by approximately 49% over the past five years—twice the rate of wage growth.
For many buyers, mortgage rates would need to return to the historic lows of three years ago, or home prices would need to drop significantly, for affordability to improve. Economists project that mortgage rates will hover around current levels for the remainder of the year, with slight decreases expected next year.
The sluggish housing market has seen a decline in sales, with transactions falling 2.5% last month. As home shoppers consider their options, many are hesitant to enter the market, hoping for lower rates in the future. Real estate experts encourage buyers to take action now, as waiting could lead to increased competition later.
Despite the challenges, some first-time buyers are finding ways to navigate the market. For instance, Drew Yae recently purchased a townhome and is exploring refinancing options to secure a lower rate in the future. Demand for refinancing is rising, with applications increasing by 24% last week.
