Mortgage Rates Drop - Is it Time to Buy?

On September 18^th, the Federal Reserve (FED) reduced its interest rate for the first time in over 4 years. Their rate had risen as high as 5.5%, which led mortgage rates to rise to 8%. The FED changes their rate to strike a balance for economic growth that reduces inflation, while warding off a recession.

Because their rate manages the money supply, the effect of lowering rates can impact the economy in many ways, including housing and growth in the business sector. Over the last few years, they had been increasing their rate in an effort to reduce inflation to their target rate of 2%.

Interest rates on a 30-year fixed mortgage fell to 6.09% this last week. Even while the FED reduced their rate by 50 basis points, mortgage rates had already predicted this rate drop and were competitively priced during September.

“Mortgage rates continued declining towards the six percent mark, reviving purchase and refinance demand for many consumers,” said Sam Khater, Freddie Mac’s Chief Economist. “While mortgage rates do not directly follow moves by the Federal Reserve, this first cut in over four years will have an impact on the housing market. Declining mortgage rates over the last several weeks indicate this cut was mostly baked in, but we expect rates to fall further, sparking more housing activity.”

A year ago, interest rates were at 7.19% and the FED rate was set at the highest it had been in 23 years. While many experts expect interest rates to drop to the 5% range in 2025, rates may not dip below 6% in 2024. The next FED meeting takes place on November 7^thand will determine how quickly mortgage rates will fall.

In a recent statement, the FED wrote: “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.”

”Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated.”

While a reduction in rates on mortgages may bring homebuyers back into the housing market, increased demand could also lead to higher home prices. Is it time to lock in your mortgage rate?

Benefits of Waiting

Rates may drop further if the FED continues to reduce their rate.
This would lead to lower finance costs.

Drawbacks of Waiting

Increased demand could drive home prices higher.
As rates drop, competition among other buyers increases.

As demand for loans increase, lenders may increase their margins.

According to Redfin, California home prices were up 3.3% in August 2024. 42% of homes sold over list price, while 27% showed price reductions. With inventory only increasing to a 3 month supply, we may still see a rise in home prices, even if more buyers enter the market.

Contact me today for more information about the Lake Tahoe real estate market.