Waiting for Fed Rate Cut Before Buying a Home? Experts Say Think Twice

Christy Bieber via Moneywise said on 8.28.2024: “Waiting for the Fed to cut rates before buying a home? Experts predict no relief for buyers even if interest rates fall — here's why”

Beiber cited “Orphe Divoungu, Zillow Home Loans senior economist, speaking to Yahoo Finance.”

“I think people are very excited about the prospect of the Fed cutting interest rates, but I don’t think that lower rates will translate into lower mortgage rates immediately as some expect," Divounguy said. "I think mortgage rates are likely already reflecting Fed expectations."

Beiber said: “The Federal Reserve doesn't directly control mortgage rates. It controls the overnight rate at which banks borrow from each other. While this influences mortgage rates, a Fed rate cut won't necessarily send them plummeting.”

A mortgage lender MHLivingNews contacted said similarly.

Bethany Bulter with Coast to Coast Mortgage works with multiple lenders and has years of experience. Bulter, Sr. Mortgage Loan Advisor | NMLS: 67095, said the following in an email.

“As you know, it’s very complicated. The rate hike you are referring to is for the Fed Rate, this is the rate banks charge each other to borrower money overnight. It is a short term rate. Mortgage rates are obviously long term rates. Long term rates are driven primarily by long term factors like inflation. When the Fed increases the overnight rate, that tends to combat inflation and the intended result is to slow inflation, which is ultimately good for long term rates.” Butler ended with, “I hope this helps…There are no guaranties of course but you now have the theory…”

The Real Estate Mortgage Guy said: "Marry the house, date the rate" is a home buying strategy that suggests that while a home is a long-term commitment, the mortgage terms can be flexible.

Bieber via Moneywise also said this.

"A rate cut could mean skyrocketing housing prices.

Would-be homeowners are facing even more dire warnings from other experts, including Pulte Capital CEO Bill Pulte and “Shark Tank” star and investor Barbara Corcoran. Both Pulte and Corcoran spoke to Fox Business earlier this year and believe that if the Fed cuts rates, property costs will skyrocket.

Corcoran also said: "If rates go down just another percentage point ... prices are going to go through the roof," she said. "Because everyone will come out and buy. There are probably 10 buyers on the sidelines waiting for interest rates to come down than are actually active in the market. So everybody’s going to charge to the market."

Similarly, when someone thinks that if they wait for Kamala Harris (D) to get into the White House she will give them $25,000 to help buy a house, they too may be missing key facts.

First, there is no guarantee Harris will win. And if Harris did, and if she managed to get such a plan through Congress, that too would send demand and prices higher. It sounds great, but there are no guarantees. Plus, when you see the actual history of such give a down payment efforts, it isn’t nearly as pretty as it sounds.

Per an New York Post article by Lee Zeldin (attorney, multi-year GOP lawmaker, and a U.S. Army Reserve second lieutenant) published on 8.29.2024, he cited liberal economist Paul Krugman (D) who once said: "93% of economists don’t support rent control — and for good reason.

“Nothing brings out unity in economists and land use scholars like the folly of rent control,” Krugman wrote, because both Democratic and Republican experts understand such policies only lead to higher rents on uncontrolled apartments, giving “desperate renters nowhere to go because new apartment construction becomes virtually nonexistent.”

Zeldin also quoted centi-billionaire Elon Musk, a self-described moderate Democrat.

"Elon Musk, among others, tried to set her [Harris] straight: “Unless you increase the supply of new homes, this just raises the price by $25k,” he retorted."

With even that brief backdrop from voices on the left and right, it should be obvious that waiting for politicians, rate cuts, or other factors may be an illusion.

But there are possible solutions that don't require new laws or some other near magical event to occur. See the earlier reports in this periodic series on housing affordability to learn more.

> TARK-‘I’m a Teen and Know the Solution to Affordable Housing Crisis’

> Renting? Rent too High? Odds Are DOJ Suit vs RealPage Matters to You

> New-Certified “Half Price Homes” - Affordable Housing Solution Redux

> Frank Rolfe-Special Interests ‘Don’t Want to Solve Affordable Housing'

> Solution: “Would-Be Homebuyers Need 80% More Income Than 4 Years Ago”

As a multi-decade professional who monitors housing news on an ongoing basis, I know there are all kinds of headlines and reports. If you want to find something that will say what you want to hear, odds are good you can find it. Why?

Because some writers or sources tell you what you want to hear because they are hoping to sell you something.

In this series, what we are presenting is reality. Reality isn't always popular. But reality is more dependable than mere wishes. As a prudent writer once said, wishing is not a good strategy or plan.

This Q&A with Bing's artificial intelligence (AI) powered Copilot underscores the points shared in this fact-backed column.

Q > Waiting for Fed Rate Cut Before Buying Home? Experts Say Think Twice.

Copilot

Sent by Copilot:

Many experts are advising caution for those waiting for a Federal Reserve rate cut before purchasing a home. Here are some key points to consider:

1. Mortgage Rates May Not Drop Significantly: While a Fed rate cut can influence mortgage rates, it doesn’t guarantee a significant drop. Mortgage rates are influenced by various factors, including market expectations and economic conditions(1).
2. Current Market Conditions: The housing market is showing signs of rebalancing, with more sellers cutting prices and an increase in inventory(1). This could be a good opportunity for buyers, regardless of potential rate cuts.
3. Timing and Frequency of Rate Cuts: There’s no guarantee on the timing or number of rate cuts the Fed will implement. Predictions vary, and waiting might mean missing out on current opportunities.
4. Refinancing Options: If you find a home that fits your needs and budget, buying now and refinancing later if rates drop could be a smart move. ..."

That from AI powered Copilot largely supports what was said above.

Decades of political promises are often not addressing the core issues. Housing affordability in the 21st century have been driven because there is not enough new housing supply. Factors outlined in the linked articles above and the one below the next graphic look at the underlying problems driving these higher costs.

Only a strong supply of new housing that is inherently affordable can make housing more affordable. As "TARK" said, even a teenager can figure that out. ##

L. A. “Tony” Kovach and his family live in Winter Haven, FL. He is the co-founder of MHLivingNews.com and MHProNews.com - leading trade publications serving segments of the affordable housing industry. ###