Mortgage Rates Hit Lowest Level Since February 2023 Following Fed's Interest Rate Cut

Mortgage rates in the United States have dropped to their lowest level since early February 2023, an encouraging sign for the housing market after the Federal Reserve's recent jumbo-sized interest rate cut.

The average rate for a 30-year fixed-rate mortgage, the most popular home loan, fell to 6.09% from 6.20% the previous week. This marks the lowest level since February 2, 2023.

The decline in mortgage rates has been driven by anticipations of the Federal Reserve's interest rate reduction, which was realized on Wednesday. The central bank lowered its benchmark interest rate by a larger-than-usual half percentage point and signaled more cuts to come.

Let’s dive into the recent data on existing-home sales in August 2024. According to reports, there have been some notable trends:

• Sales Decline:

Existing-home sales decreased by 2.5% in August compared to July.

The seasonally adjusted annual rate (SAAR) of existing-home sales stood at 3.86 million.

Year-over-year, sales are down by 4.2% from August 20231.

• Inventory Increase:

Total housing inventory at the end of August increased to 1.35 million units from July’s 1.34 million units.

This represents a significant 22.7% increase from the same period last year.

• Median Sales Price:

The median existing-home sales price in August was $416,700, which is 3.1% higher than a year ago.

However, this increase is down from the revised 3.9% year-over-year increase observed in July.

• Market Response to Lower Mortgage Rates:

The market’s response to lower mortgage rates is being closely monitored.

The negative 4.2% year-over-year reading in August 2024 is significant, especially considering the strong showing of new listings and home sales late last year.

• Impact on the Housing Market:

The lower mortgage rates could help spur demand for refinancing and home purchase loans. As rates approach 6%, more potential sellers may decide to list their homes, increasing inventory.

However, high home prices may continue to pose challenges for first-time buyers, despite the reduction in loan payments. Sales of previously owned homes fell in August to the slowest pace since October.

• Outlook for Mortgage Rates:

Economists generally expect mortgage rates to remain near their current levels, at least for the remainder of 2024. Projections indicate that the rate on a 30-year mortgage will average around 6.2% in the upcoming quarter and decline to an average of 5.7% in the same quarter next year.

As experts note, 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 that this cut was largely anticipated, but further reductions are expected to spark more housing activity.

This increase is down from the revised 3.9% year-over-year increase observed in July. With the recent rate cut by the Federal Reserve, buyers’ response to improved affordability and more new listings is being observed.

NAR Chief Economist Lawrence Yun remains optimistic, citing the combination of lower mortgage rates and increasing inventory as a powerful driver for future sales.

In summary, while existing home sales dipped, the continued downward trend in mortgage rates provides hope for a stronger housing market. Buyers should keep an eye on economic data to gauge whether further rate cuts are likely. 🏡💡