Housing Industry Awaits Fed’s Next Rate Cut

The Federal Reserve held interest rates steady but hinted at possible cuts in the coming months, keeping the federal funds rate between 5.25% and 5.5%. While acknowledging that inflation has eased and unemployment has risen, the Fed signaled a more balanced risk to the economy, with some experts predicting rate cuts as early as September. Mortgage rates, already showing signs of decline, may drop further if the Fed reduces rates, potentially boosting refinancing activity and offering some relief to the housing market.

However, experts like Eric Orenstein of Fitch Ratings caution that the housing market’s recovery may be slow even with potential rate cuts. High home prices and tight affordability continue to challenge the market, and while lower mortgage rates could help, the road to increased home buying and higher origination volumes remains uncertain. The next few months will be critical as the housing industry anticipates the Fed’s actions and their impact on the market.

August Mortgage Rates May Keep Falling

Mortgage rates are expected to continue their downward trend in August as inflation eases. Since peaking in April, the average 30-year fixed-rate mortgage has steadily decreased, reaching 6.74% in July. This decline is linked to falling inflation, with the Fed’s preferred inflation gauge dropping from 4.3% in June 2023 to 2.6% in June 2024. The Federal Reserve may consider cutting rates in September if inflation continues to move towards their 2% target, which could further lower mortgage rates.

However, if inflation unexpectedly rises, or if there are significant geopolitical or political events, mortgage rates could increase instead. Despite the overall trend of declining rates, they are expected to fall only slightly in August. Some homeowners with high-rate mortgages from last fall might consider refinancing, though the decision depends on various factors like the difference in rates, closing costs, and how long they plan to keep the home.

CoreLogic’s Price Index Declines: What It Means Next

Home price growth is slowing, with the CoreLogic Home Price Index showing a 4.7% year-over-year increase in June, marking the second consecutive month with growth under 5%. This follows six months of higher growth, and CoreLogic predicts further slowing, projecting only a 2.3% increase by June next year. The housing market has been impacted by high mortgage rates, which are reducing affordability and discouraging buyers, resulting in a modest 0.3% month-over-month price gain in June, much lower than pre-pandemic averages.

Geographically, the cooling trend is spreading, with nine states experiencing monthly price declines in June, up from just three in May. Although no state saw an annual price decrease, only one (South Dakota) recorded double-digit growth. Sun Belt cities like Miami, San Diego, and Las Vegas led in yearly price gains, while high mortgage rates continued to pressure home price appreciation nationwide. CoreLogic attributes the slowing growth to these elevated rates, as buyers anticipate a lower rate environment later in the year.