Mortgage Rates

You may be hearing a lot of talk about the Federal Reserve (the Fed) and how their actions will impact the housing market right now. Here’s why.

The Fed meets again this week to decide the next step with the Federal Funds Rate. That’s how much it costs banks to borrow from each other. Now, that’s not the same thing as setting mortgage rates, but mortgage rates can be influenced through this process. And if you’re thinking about Unemployment this low shows the labor market is still strong even as fewer jobs were added to the economy. That’s the balance the Fed is looking for.

What Does This Mean Going Forward?

Overall, the economy is headed in the direction the Fed wants to see – and that’s why experts say they will likely cut the Federal Funds Rate by a quarter of a percentage point this week, according to the CME FedWatch Tool.

If that expectation ends up being correct, that could pave the way for mortgage rates to come down too. But that doesn’t mean they’ll fall immediately. It will take some time. Remember, the Fed doesn’t determine mortgage rates. Forecasts show mortgage rates will ease more gradually over the course of the next year as long as these economic indicators continue to move in the right direction and the Fed can continue their Federal Funds rate cuts through 2025.

But a change in any one of the factors mentioned here could cause a shift in the market and in the Fed’s actions in the days and months ahead. So, brace for some volatility, and for mortgage rates to respond along the way. As Ralph McLaughlin, Senior Economist at Realtor.com, notes:

“The trajectory of rates over the coming months will be largely dependent on three key factors: (1) the performance of the labor market, (2) the outcome of the presidential election, and (3) any possible reemergence of inflationary pressure. While volatility has been the theme of mortgage rates over the past several months, we expect stability to reemerge towards the end of November and into early December.”

Bottom Line

While the Fed’s actions play a part, economic data and market conditions are what really drive mortgage rates. As we move through the rest of 2024 and 2025, expect rates to stabilize or decline gradually, offering more certainty in what has been a volatile market. 

Homeowners typically slow down their moving plans as the summer months wrap up, and as a result, fewer homes are listed for sale in the fall. It’s a predictable, seasonal trend in real estate. But this year, mortgage rates came down at the same time the number of homes on the market usually starts to decline. So, what happened? More homeowners decided to sell, so more homes came to the market.

The most recent data from Realtor.com reveals that in September, the number of homes put up for sale increased by 11.6% compared to this time last year.

As the green circle in the graph below shows, the typical September decline in homes coming to the market didn’t happen – that number actually went up (see graph below):

Ralph McLaughlin, Senior Economist at Realtor.com, explains why there was an unseasonable rise:

“This sharp increase is largely due to the decline in mortgage rates in mid-August, enticing homeowners to sell.”

So, as rates came down at the end of the summer, more people jumped into the market and decided to make their move.

What Does This Mean If You’re Looking To Buy a Home?

It means more fresh options to choose from than you’ve had in a while – not the ones that have been sitting around, unsold.

But keep in mind, mortgage rates have been volatile lately, ticking up slightly in recent weeks, which could limit the number of people who feel comfortable with the idea of selling in the months ahead. And in this market, it’s mortgage rates that are largely driving homeowner decisions.

Why Buy Now, Rather Than Wait?

Whether you’re looking for a starter home, an upgrade, or hoping to downsize, you have more homes to choose from right now. And if you can find what you’re looking for, know that these new, fresh options won’t be on the market forever. So, staying on top of what’s available in your local area with a trusted agent is key.

And remember, one month doesn’t make a trend. So, what does that mean going forward? Whether more homeowners than normal continue to put their houses on the market will largely depend on what happens with mortgage rates and the economic factors that impact them, like inflation, employment, and the reactions by the Federal Reserve.

With that in mind, now might be your moment, while more homes are available – if you’re ready, willing, and able to buy this fall.

Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), explains:

“The rise in inventory – and, more technically, the accompanying months’ supply – implies home buyers are in a much-improved position to find the right home and at more favorable prices.”

Bottom Line

As rates came down at the end of the summer, sellers started to trickle back into the market, which means buyers have more choices right now. And working with a trusted local real estate agent is the best way to take advantage of your new options before they’re all scooped up.