Real estate agents have struggled to navigate more than two years of stiflingly high mortgage rates, which have hampered sales, choked inventories and pushed home prices to new record highs.
So what was the reaction of officers when the Federal Reserve surprise everyone by cutting interest rates by 50 basis points instead of the 25 that was taken for granted?
Meh.
In conversations with HousingWire, Agents across the country said they don’t think the larger-than-expected rate cut will have much more of an impact on the housing market than if they had gotten the rate cut they expected.
They believe that lower mortgage rates are already priced into the market and that the movement of buyers will be delegated to people at the margins who need to move, rather than want to.
And while sales will likely increase, there is a scenario where an influx of buyers will drive up prices and offset the financial benefit of lower mortgage rates.
“I always think demand comes before supply in this situation,” he says Redfin agent Justin Vold, based in Los Angeles. “If more buyers come in than there is supply, that should dictate higher prices or more sales, one of the two.”
Home sales could use some juice. The National Association of Real Estate Agents reported this week that existing home sales fell 2.5% month-on-month in August and 4.2% from a year ago. Although sales of new homes are doing much better, they are significantly less part of the market.
The rising interest rates were a response to post-pandemic inflation that started to rise sharply in early 2022. But inflation rates have been steadily declining for some time and appear to have bottomed out.
The consumer price index (CPI) for August rose just 2.5% year-on-year, the lowest since February 2021. Core inflation – excluding food and energy costs – fell to 3.2%, a key indicator for the Fed.
But the only part of the CPI What remains stubbornly high is housing costs, which make up a third of the index. This has led to a perception in the real estate industry that the Fed has bungled the timing of rate hikes and cuts.
“By March 2022, everyone, including my cat, knew that inflation was soaring and the money supply was zero,” says the New York-based Compass Officer Leonard Steinberg. “To some extent I think the Fed has been slow to respond, but we are getting back to normal. That is good for the housing market, but there is still a lot of work to be done [housing] delivery.”
More important than the size of the interest rate cut is where mortgage interest will end up if the cut continues. Agents consistently said the magic number for interest rates that would really move the market would be 5% or lower.
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Geographically, the effect will be different depending on the conditions in a particular market. In Florida, Texas and Boise, Idaho — pandemic boomtowns that have since cooled significantly — lower mortgage rates could stabilize the market.
Linda O’Koniewski, an agent in the Massachusetts area, says the lower rates could make things worse in hot seller markets.
“In greater Boston, it’s just going to add more fuel to the fire here,” she said. “This does not really solve the affordability problem. It’s great for investors. It’s great for mergers and acquisitions. It’s great for a lot of people, but for the guy on the ground? It could mean he can break into a house. It depends on which part of the country.”
Christian Prakas, a Serhant real estate agent in Palm Beach County, Florida, points out that lower interest rates could also impact the luxury market, which is typically considered immune to mortgage interest rates.
“People have a big misconception that these interest rates don’t impact the high-end market, which is $10 million and up,” he said. “It does affect them. If the interest rate was 2.5% to 3.5%, they would take out a $30 million loan because they could make more money with their money in their own business or in the bond market or in stocks. It has locked those boys up in those big houses that they don’t really want anymore.”
