The Federal Reserve recently lowered the target range for the federal funds rate 25 basis points to 4.5 percent. It was only the second time the Fed cut the benchmark interest rate since March 2020. But while that sounds like it might mean mortgage rates will also fall 25 basis points, that isn’t necessarily the case. In fact, it may not lower rates at all in the short term. Why? For one, the cut was widely expected and, therefore, much of its impact was already absorbed – much the same way declining mortgage rates in August were mostly due to anticipation that the Fed would cut rates in September. After that cut, however, rates starting drifting back upward. In other words, when the Fed cuts rates, it’s good news for home buyers and borrowers in the long run but doesn’t mean you’ll see a dramatic drop in mortgage rates or any immediate impact at all. (source)

Each month, Fannie Mae’s Home Purchase Sentiment Index tracks how Americans feel about the housing market, buying and selling a home, mortgage rates, home prices, their jobs and financial situation. In October, the index found participants more optimistic about the market than they’ve been at any point since February 2022. Mark Palim, Fannie Mae’s senior vice president and chief economist, says the gains are encouraging but home buying sentiment still remains low. “While we have seen significant improvement in overall housing sentiment over the past two years, consumers’ perception of home buying conditions remains strained, with only 20 percent believing it’s a ‘good time’ to buy a home, primarily due to high home prices,” Palim said. On the other hand, a majority of respondents say it’s a good time to sell, with 64 percent feeling now’s the time for current homeowners to list their home. (source)

According to the Mortgage Bankers Association’s Weekly Applications Survey, average mortgage rates climbed higher again last week. Rates were up from one week earlier for 30-year fixed rate loans with both conforming and jumbo balances, as well as loans backed by the Federal Housing Administration. On the other hand, the average interest rate for 15-year fixed-rate loans and 5/1 ARMs saw declines. Joel Kan, MBA’s vice president and deputy chief economist, says recent upward pressure on rates has subdued demand for mortgage applications. “Applications decreased for the sixth consecutive week, with purchase activity falling to its lowest level since mid-August and refinance activity declining to the lowest level since May,” Kan said. Still, both the refinance and purchase index show activity is up from where it was last year at the same time. The MBA’s weekly application survey has been conducted since 1990 and covers 75 percent of all retail residential mortgage applications. (source)

The National Association of Realtors recently released its 2024 Profile of Home Buyers and Sellers. The annual report looks at the past year of transactions and determines who is buying and selling homes and how. This year’s report shows the share of first-time home buyers hit a low over the past year, while the typical buyers’ age reached an all-time high of 56 years. Jessica Lautz, NAR’s deputy chief economist and vice president of research, says the results are a sign of the times. “The U.S. housing market is split into two groups: first-time buyers struggling to enter the market and current homeowners buying with cash,” Lautz said. “First-time buyers face high home prices, high mortgage interest rates, and limited inventory … Meanwhile, current homeowners can more easily make housing trades using built-up housing equity for cash purchases or large down payments on dream houses.” (source)

If you’re a home buyer frustrated by high home prices, what you’re really frustrated by is inventory. The supply of homes for sale has been lower than normal for most of the past decade and reached historically low levels during the pandemic. When there are too few homes for sale and plenty of interested buyers – as there were during the pandemic – home prices get pushed higher. In other words, today’s high home prices are the result of a long-standing lack of available homes for sale. The good news for buyers, though, is that inventory is now improving. In fact, according to the National Association of Realtors’ consumer website, on a typical day in October, there were 29.2 percent more homes actively for sale than there were in October 2023. October also marked the highest level of active inventory since December 2019, with new listings up in every region. The rising number of available homes for sale means buyers can expect improved affordability levels and moderating price increases in the months ahead. (source)

Home buyer affordability continued to improve in September, according to the Mortgage Bankers Association. The MBA’s monthly Purchase Applications Payment Index – which measures the national median mortgage payment applied for by prospective home buyers – found payments down 0.8 percent from the month before. Edward Seiler, MBA’s associate vice president, Housing Economics, and executive director, Research Institute for Housing America, says affordability is now better than it’s been in two years. “Home buyer affordability conditions improved for the fifth consecutive month, as mortgage rates … improved purchasing power for prospective buyers,” Seiler said. “Overall affordability is now at its highest level since August 2022, but the recent jump in rates will likely cause conditions to plateau.” In September, the median monthly mortgage payment fell to $2,041 from $2,057 the month before. For borrowers applying for lower-payment mortgages, payments fell to $1,369. (source)

The National Association of Realtors’ Pending Home Sales Index measures the number of contracts to buy homes signed each month. Because contract signings precede closings, the NAR’s index is considered a good future indicator of existing home sales numbers. In September, the index rose 7.4 percent to its highest level since March. Lawrence Yun, NAR’s chief economist, says the spike in signings was likely due to falling mortgage rates during the month. “Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” Yun said. “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.” Yun says sales should increase over the next year and beyond, as home prices and inventory levels continue to improve. (source)