Is a Bigger Rate Cut on Horizon? Countdown to Friday Begins...

Hey everyone! I hope you had an amazing Labor Day weekend! As we roll into September, we’re gearing up for what’s shaping up to be a very exciting month in the mortgage and real estate markets. I am here to keep you updated on everything you need to know. Let’s dive in

Read time: ~4 minutes

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

No Inflation Surprises: Fed Likely to Stick with 0.25% Cut

It is crazy to think, but it has been exactly 405 days since the Fed last made a move on interest rates! In that time, we've seen some major headlines: Britney Spears and Sam Asghari called it quits, the World Health Organization officially declared the end of COVID-19 as a global health threat, Taylor Swift kicked off her highly anticipated "Eras Tour," and Lionel Messi made waves by joining Inter Miami. So much can change in just over a year!

Now, all eyes are on the Fed as we approach their much-anticipated meeting, set to happen in just two weeks. Everyone's wondering, “Will they finally cut rates, and if so, by how much?”

At this moment, everything indicates a 0.25% rate cut. The recent PCE inflation report released last Friday aligned with expectations, showing a year-over-year increase of 2.5%. This aligns with the Fed’s projected move. If the inflation rate had been lower, there might have been talks of a 0.50% rate cut. However, with inflation right where it was “expected”, the odds of a .50% is less likely in the coming weeks.

Is a Bigger Rate Cut on Horizon? Countdown to Friday Begins…

In times when the job market is thriving and unemployment is low, the upcoming jobs report often doesn’t garner much attention. But things are different now. With growing hopes for lower interest rates and signs that the job market might be cooling off, this report has become crucial for anticipating the Federal Reserve's next steps.

We’re all eager for the Fed to lower rates, as lower interest rates can help stimulate economic growth. However, the Fed is cautious about cutting rates too quickly while the job market still shows strength. Premature cuts could cause inflation to spike again, potentially leading to future rate hikes. The Fed aims to keep its credibility intact and avoid sudden changes in its policy approach.

That’s why this Friday’s report on September 6th is so important. If it shows a noticeable drop in job creation, we could see mortgage rates fall even more, increasing the odds of a 0.50% rate cut instead of the anticipated 0.25%.

Remember, as I have mentioned before, the Fed’s rate decisions doesn’t directly change mortgage rates. What really impacts mortgage rates is how expectations about these cuts evolve leading up to the Fed's official announcements.

The 30-Year Mortgage Shield: U.S. vs. Global Housing Risks

As someone who loves to geek out on mortgage trends, I’ve been exploring how mortgage systems differ across countries. One thing that stands out is how lucky we are in the U.S. to have widespread access to 30-year fixed-rate mortgages.

The chart below shows that the U.S. has the lowest percentage of adjustable-rate mortgages (ARMs) compared to other developed nations, which is a rarity elsewhere, where ARMs dominate.

Why does this matter so much? Unlike fixed-rate mortgages, ARMs can change your mortgage rate at set intervals. If rates increase, your payments can rise significantly, which could put a serious strain on your finances. This can make it incredibly hard to plan for the future if you intend to stay in your home for the long term. Being stuck with an ARM in a high-rate period can lead to financial stress quickly!

One of the benefits of our stable mortgage market in the U.S. is that it often insulates us from some of the more severe housing market downturns that other countries experience. Countries with a high prevalence of ARMs, like Canada or the U.K., are often hit harder in times of economic stress. Luckily here in the U.S., with over 90% of homeowners having 30-year fixed mortgages, we have a buffer against the kind of housing market instability that could trigger a crisis.

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