Fed’s Rate Cut Is Almost Here ✂️

Hello everyone! Hope you had an awesome weekend. Fed Week is finally here, and I am ready to break it all down for you. Let’s dive in!

Read time: ~4 minutes

Rates ended DOWN compared to last week, and volatility was LOW. Rates are in the low 6’s for most loan types without paying discount points. Paying discount points can get you in the high to mid 5’s.

Fed’s Rate Cut Is Almost Here ✂️

The moment we’ve been waiting for is almost here. This Wednesday, September 18th, the Fed is about to make a move—it’s all but guaranteed that they will be cutting rates for the first time since the pandemic hit.

I’ve mentioned before that the upcoming rate cut on Wednesday probably won’t have a huge impact on mortgage rates. That’s because mortgage rates have already adjusted based on what the market expects from the Fed. In fact, a lot of the recent drop in rates is due to the market already pricing in the expectation of lower Fed Funds Rates in the near future.

While we all know a Fed rate cut doesn’t automatically translate to lower mortgage rates, Wednesday’s announcement could still trigger significant market swings. The main reason for potential volatility lies in whether the Fed cuts by 0.25% or 0.50%. With investors split, any outcome is likely to catch some off guard and shake things up. However, If the Fed surprises us with a 0.50% cut, expect mortgage rates to drop even further, giving the market plenty to celebrate!

Unlocking Buying Power with Lower Rates

Every buyer’s journey is unique, but here’s a real-life example that shows the power of lower rates.

I had an FHA buyer prequalified a year ago at a 7.25% rate. With that, they were looking at a $3,623 monthly payment and a max prequalification of $450,000. They ended up sitting it out.

Fast forward to last week: with rates down to 5.75%, that same $450,000 home would now cost them $436 less each month. Or, they could stretch their buying power to $512,000 while keeping the same $3,600 monthly payment. That’s an extra $62,000 in purchasing power!

Of course, not everyone’s payment has dropped that dramatically. The average mortgage payment is down only 1.3% from a year ago—not huge, but still the second-largest drop since May 2020.

However, home prices are still up there. According to Redfin, whose national metrics cover data from 400+ U.S. metro areas and are based on homes listed and/or sold during the period, the median home price is $388,085. That’s a 3.7% increase from last year and close to an all-time high. Prices are holding strong because we still don’t have enough inventory—supply is down 30% from pre-pandemic levels, despite a 16.7% jump in available homes compared to last year.

High prices aren’t the only thing keeping buyers on the sidelines. Some are holding off because they’re unsure about the new NAR rules, while others are hoping rates will drop even more.

The good news? We’re seeing early signs of increased buyer demand. Redfin’s Homebuyer Demand Index, which tracks tours and services, is nearing its highest point since May. Plus, mortgage-purchase applications rose by 2% last week.

If the Fed makes an aggressive move, it could shift the market even more. Use this week as an opportunity to reach out to your leads—this might be the nudge they need to make a move.

Source: Redfin 

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