What Home Buyers And Sellers Can Expect This Fall

Mortgage rates have recently fallen to 6.5% for a 30-year fixed-rate mortgage, a meaningful decline from the peak of 7.8% in October of last year. This decline has led to the first year-over-year drop in monthly mortgage payments since 2020, which is welcome relief for potential home buyers who have been struggling to afford a purchase.

However, this dip in mortgage rates comes with a caveat. It’s unlikely that rates will decrease significantly in the short term because financial markets have already priced in future declines in the Federal Funds Rate. The Fed is widely expected to begin cutting interest rates at its upcoming meeting on September 18. While this should theoretically lower mortgage rates further, the size and pace of these cuts will depend on incoming economic data about the strength of the labor market. Fed Chair Jerome Powell has stated that the time has come for rate-cuts and the Fed is prepared to adjust its policies depending on the data. If labor market data shows continued strength, the Fed will likely opt for a more gradual reduction in rates, which could lead to a slight increase in mortgage rates through the fall. However, if the labor market weakens, we could see more aggressive cuts, driving mortgage rates down even further.

For both buyers and sellers, the key takeaway is to stay informed. The way down for mortgage rates will likely be bumpy as economic data continues to roll in, and the Fed’s actions will play a significant role in determining the path for mortgage rates.

Home buyers may want to try to time the market, but getting the timing exactly right is difficult, if not impossible. On one hand, the recent drop in mortgage rates has made buying a home slightly more affordable, and there is potential for rates to decrease further if the Fed enacts aggressive rate cuts. On the other hand, the uncertainty surrounding whether rates will drop significantly more may lead some buyers to hesitate, waiting for clearer signals before making a move.

This hesitation is understandable. Many buyers are holding out for lower rates, reduced buyer agent fees given recent industry rule changes, or a drop in home prices. However, this strategy comes with risks. As the fall season progresses, competition among buyers could increase, particularly if rates do begin to fall further. This could lead to bidding wars, especially for desirable properties in low-inventory markets.