Are We Starting a Mortgage Rate Cut Cycle for Austin, Georgetown Real Estate?
Yes. Today officially marks the first day of fall. I realize to the north people are already guzzling pumpkin spice everything – tea, coffee, kefir, bottled water – while strolling through leaf-cluttered walkways on crisp, sun-splashed mornings.
And in Texas? Fall means football. The Longhorns are number one in the nation. And the Cowboys? Let’s not go there.
On the real estate front, on Wednesday, the Board of Governors of the Federal Reserve System announced they would begin cutting interest rates with a .50 percentage point (50 bps) drop this month. The Fed also signaled intentions to cut rates two more times this year. Chairman Jerome Powell disclosed, “We have in fact begun the cutting cycle now.”
What does this mean?
The housing market, one of the most rate-sensitive sectors in the U.S. economy, has directly felt the impact of the Federal Reserve’s previous eleven hikes since March 2022. As a result, home sales have plunged as homebuyers pulled back in the face of high borrowing costs and soaring home prices. Mortgage rates hit their highest apex in two decades, briefly tagging 8% last October.
Now, with the rate cut cycle officially in motion, what does it mean for the Austin, Georgetown real estate market? First, a disclaimer – while the Fed does not directly set mortgage rates, its policy certainly influences them. Groups like the Mortgage Bankers Association, Wells Fargo, and Fannie Mae all expect mortgage rates to come down further as the Fed’s monetary policy points to additional easing.
As a result, what might be the impact?
#1: Lower mortgage rates could bring more buyers back into the market as affordability improves.
#2: Lower mortgage rates could potentially push home builders to construct homes designed for first-time home buyers.
#3: Lower mortgage rates could also entice more homeowners to sell, thus increasing housing inventory. Approximately 86% of Austin and Georgetown homeowners have interest rates below 6%. As long as interest rates remain elevated, owners are reluctant to move out and move up to a higher rate. However, as rates drift lower, some sellers will trade their built-up equity for a home fitting their current needs. Leo Pareja, chief executive of eXp Realty recently explained, “The insult to injury of high rates was the lock-in effect that we’ve never seen before.”
Where are we now?
Doug Duncan, Fannie Mae’s (FNMA is a government-sponsored provider of mortgage financing in the U.S.) chief economist wrote on Wednesday, “Although mortgage rates have fallen considerably in recent weeks, we’ve not seen evidence of a corresponding increase in loan application activity, nor has there been an improvement in consumer homebuying sentiment. We think it’s likely that many would-be borrowers are waiting for affordability to improve even further, and that some may be anticipating declines in mortgage rates given the expectations that the Fed will lower the federal funds target rate.”
What might mortgage rates look like moving forward?
While forecasting monetary direction is risky behavior, the following chart compiled by Mortgage Bankers Association, Fannie Mae, Wells Fargo Bank, and Moody’s Corporation (a credit rating and financial analysis service company) projects the following decline.
To add perspective to the graph’s dot plot, let’s focus on what we know in terms of everyday dollars and cents. From the graph’s peak – October 2023 to now – September 2024, the decline in a monthly house payment looks like this: Let’s suppose you were looking at homes around $425,000. The savings today, in comparison to a year ago, would be roughly $300.00 a month.
Final thoughts
The 2020s have proved daunting. It started with a pandemic. From February 12 to March 16, 2020, the stock market plunged 31.7%. Schools and businesses shut down. Home offices and homeschooling became the norm. Supply chain disruptions created scarcity. To prevent an economic collapse, the Federal Reserve slashed interest rates while inflating the money supply. The pendulum, however, swung too far as inflation rocketed out of control. Reversing course, the Fed swiftly raised rates attempting to deflate the money supply. And here we are today – with decreasing fuel prices and increasing food costs. The gap between what we make and what we spend keeps widening for too many Americans.
If we feel stuck, there are good reasons. For those who bought a home in the early 2000s, we enjoy a mortgage rate near 3%. For the time being, we are staying put. If we missed out and are now looking to buy, we also are staying put. And when will the staying put turn into moving out? When the time is right.
One thing we do know, with Wednesday’s Fed’s announcement, the right time looks much closer than it did a year ago. Meanwhile, I am serving three sellers and two buyers. For them, the time is now. And when you decide the time is right for you, let me know. I’m here to serve you well.