Will Housing Become More Affordable?
The Federal Reserve Chairman Jerome Powell announced today, a half-point reduction in the Federal Funds Rate. Whenever the Fed rate changes, people ask how it will affect mortgage rates. The short answer is, it doesn’t, but it does.
What I mean by that is the Fed Funds Rate is the rate financial institutions charge each other for overnight lending of their reserves. These are the ultimate short-term rates.
Mortgages are long-term loans, with 30 years being the most common. They should, therefore, be unrelated to the Fed. In fact, the Fed rate hasn’t changed in over a year, but mortgage rates have fluctuated from the low 7’s to low 6’s during that time.
While the rate changes don’t directly affect mortgages, mortgage and other lending rates often travel in the same direction as the Fed, because the changes signal the direction in which the economy is going.
In announcing the rate cut, Powell said, “The U.S. economy is in good shape. It is growing at a solid pace. Inflation is coming down”.
With that news came rallies in both the stock market and cryptocurrency, and mortgage rates eased as well.
Mortgage Rates Follow
So, what does it mean for home buyers? Both Fannie Mae and Freddie Mac had predicted rates to drop below 6% within the next year, and some lenders were already advertising rates just under 6%. This all may mean further reductions, making borrowing more affordable for millions of hopeful buyers.
Powell had previously said it was unlikely that rates would ever again get below pre-pandemic levels, and today added, “My own sense is that we are not going back to that.”
With the recent increase in available inventory (51% year over year increase in Sacramento homes for sale ), this could mean that buyers waiting on the sidelines will finally get their chance, and have plenty to choose from.
As always we’ll keep an eye on the market, but today it looks like buyers have plenty of choices and opportunity.
For more information, or to discuss buying or selling, give me a holler.