How will Fed’s rate cut impact the Triangle housing market? What experts say.
The Federal Reserve’s long-awaited interest rate cut is finally here.
On Wednesday, it lowered the federal funds rate — which banks charge each other for overnight loans — by a half-point (50 basis points).
It’s the first rate cut since March 2020 and lowers the benchmark short-term rate to 4.75% to 5%, down from a 23-year high of 5.25% to 5.5%.
Another plus: The central bank signaled more cuts are likely coming in the months ahead.
“We have in fact begun the cutting cycle now,” Fed Chair Jerome Powell said Wednesday.
What does that mean for the Triangle housing market?
The N&O consulted financial and real estate experts on the ground for their biggest takeaways.
Mortgage rates had already been falling.
Even before Wednesday’s decision, mortgage rates had been sliding.
In October 2023, the 30-year fixed-rate mortgage nearly hit 8%, according to FreddieMac.
As of Sept. 19, it hovers around 6.09%.
“Mortgage rates have already anticipated the Fed’s likely path,” said National Association of Realtors chief economist Lawrence Yun in a release. “That’s why the 30-year rate has fallen by 150 basis points from early in the year to today.”
While the Fed doesn’t directly set long-term rates — including the 30-year fixed mortgage rate — its policy has an impact.
However, it’s still early days.
“The Fed’s half-point rate cut decision is the beginning of six to eight rounds of further rate cuts well into 2025,” Yun predicted, pointing to cooling inflation in recent months and lighter job gains.
Don’t expect mortgage rates to drop quickly.
Mortgage rates will likely remain relatively stable for a few weeks, said Redfin analyst Chen Zhao, followed by “a period of mortgage-rate volatility” as the market reacts to economic data.
To date, the housing market has not responded to lower rates, she said, adding “it’s a pattern not observed in recent history.” Amid a chronic housing shortage, prices are also not budging much.
▪ In Raleigh, home sales were down 22.4% year-over-year in August, Redfin found. Meanwhile, prices are going up. The median sale price (mid-point on all sale prices) was $440,000, a 6.6% jump year-over-year.
▪ In Durham, home sales were down 9.25% year-over-year in August, Redfin found. Meanwhile, prices are slightly down. The median sale price stood at $420,000, down 1.2% year-over-year.
While a lower federal funds rate will likely bring mortgage rates down, “it’s not going to happen overnight,” Cory Sherman, a real estate broker with Durham-based Home Grown Real Estate, told The N&O. “It will likely be a gradual and bumpy decrease.”
Time to refinance? Do your research
Lower mortgage rates are pushing many homeowners to refinances.
Applications jumped by 35% in August (and 118% year-over-year), according to the Mortgage Bankers Association’s seasonally adjusted index.
These figures will likely continue to climb, said Holden Lewis, a mortgage expert at NerdWallet.
Recent data from the finance company shows that 18% of all Americans plan to refinance a loan when interest rates go down. “The question is whether they should wait until mortgage rates fall even further,” Lewis said in an email to OTM.
Experts suggest homeowners talk with a lender about their options.
“About 4 million homes could be ripe for refinancing with rates hanging around 6%,” Selma Hepp, CoreLogic’s chief economist, told Real Estate News.
Buyers are expected to come off the sidelines.
For months, buyers have been reluctant to enter the market. “They’ve been waiting for rates to go down,” said John Wood, owner of Re/Max United in Cary, who has been an agent in the Triangle since 1988.
“Moving forward, we feel more will enter the market to take advantage.”
In some submarkets, housing inventory is edging up slowly, said AnnMarie Janni, founder and leader of Element Realty Group at Allen Tate Realtors and a member of Raleigh Regional Association of Realtors (RRAR).
“That gives buyers some great options,” she said.
If mortgage rates fall even further, “I anticipate it will make folks, who have been waiting, to act before the end of the year.”
Buyers may find better deals in outlying submarkets.
Even as home sales have dipped, submarkets like Raleigh, Cary, Apex and Holly Springs remain very competitive.
However, smaller, outlying towns — like Clayton, Wendell, Zebulon and Franklinton — are expected to heat up.
“Some markets further from Raleigh have been less strong and have inventory sitting,” said Maya Galletta, a Realtor with Legacy Realty Partners.
Those markets offer more affordable options for first-time buyers, she added. “I’m hoping for some of those outlier markets to get a little spring in their step.”
This story was originally published September 21, 2024 at 8:00 AM with the headline "How will Fed’s rate cut impact the Triangle housing market? What experts say.."
