So, the Feds announced a rate cut on September 18th of 0.50 basis points.
This was The FIRST RATE CUT IN 4 YEARS!, MAKING NOW A GREAT TIME TO FIND A HOME.
So let’s dig deeper and find out why.
The last two years were a period of extreme inflation in the U.S., peaking at a 40-year high of 9.1% in the middle of 2022. Given these numbers, and the risk inflation could spiral further out of control, the Fed stepped in to hike interest rates. The reason central banks raise interest rates during periods of inflation is that it makes borrowing money more expensive. When borrowing money is more expensive businesses and people spend less, leading to cooling inflation.
So, why did they make the cut now?
Was it based purely on inflation data? The Fed has been paying close attention to inflation. But with a softening job market, the Fed got the cover they needed to step in and help the economy. For Jerome Powell and the other Fed presidents, it’s always been about the labor market.
If inflation had been their focus, they would have cut multiple times by now.
The rate cut is good news, really good news. There was downward pressure on rates even before the Fed cut, but now we have assurance with this cut, and future cuts Powell referenced, that rates won’t reverse course and spike back to the 7’s like they’ve done the last two times we broke into the 6’s. The most likely scenario for the rest of 2024 is a slight drop over the remaining months and a holding pattern in the low 6’s. We can now comfortably say goodbye to seven percent interest rates unless something crazy happens with the labor market, which no one is predicting at the moment.
So what about the 10-year Treasury bond yield?
The 10-year Treasury Bond yield is the interest rate which the U.S. government pays to borrow money for a decade (in the form of a Treasury bond, quite obviously). This bond acts as a proxy for mortgage rates (it’s the rate that mortgage rates most closely track).
In simple terms:
- when the 10-year yield goes up -> the mortgage rates go up.
- when the 10-year yield goes down -> the mortgage rates go down.
Ok.Ok. So far, so good.
But here’s where it gets interesting.
What happens to some of us who want to buy homes, or maybe even sell our old homes?
As a homebuyer, the fed rate cuts have renewed confidence in the housing market. As a seller, this means more offers and potentially higher offers on your home. It’s quite symbiotic, really.
A 0.50 rate cut sends a message about the seriousness of reversing the lock-in effect which homebuyers have been in since 2020.
The Fed’s half-point rate cut decision is the beginning of six to eight rounds of further rate cuts well into 2025, and if they cut with the same intensity as they raised rates, we could see rates dropping even further in 2025 and 2026.
And now, according to Freddie Mac, there’s already been an initial drop from 6.20% to 6.09% for a 30-year old fixed home loan ending September 19th, 2024.
So what does this mean?
It’s time to buy your new home! And now!
Make Flyhomes your new go-to for all your real estate search and research, and move into your dream home with a drop in the market rate already seeping through!