Lower Mortgage Rates and Other Housing Market Trends

It’s difficult to predict if there will be mortgage rate cuts in the near future. The Federal Reserve officials seem to view the rate cut in July as a recalibration, not the beginning of more cuts.

Many people are unaware of this, but when the Fed cuts interest rates, it affects mostly short-term interest rates, not the long-term 30-year mortgage rates. However, mortgage companies often try to predict and "bake in" these cuts beforehand. That may be why mortgage rates seem to fall before the Fed makes the cuts. This year's decline in mortgage rates has created a boom in refinancing--the biggest in three years. Home sales show that the declining rates have increased home-buying activity mostly in the West. Refinancing has taken off since the July cut. This is a win-win for home buyers and homeowners. This provides higher home equity and higher monthly cash flow.

However, the same obstacle that has slowed the housing market in recent months is still present--low supply. Fewer properties available for sale lead to higher home prices. The higher prices of homes offset the lure of lower mortgage rates. So, affordability is still a major problem in many areas of the United States. With the ever-present talks of a looming recession, be on the lookout for even lower mortgage rates in the months ahead.

Home prices did show signs of deceleration in June of this year. This may indicate that the rate cuts are not helping the housing market much. The market has shown a slight downtrend this year. According to the S&P CoreLogic Case-Shiller National Home Price Index, average national home prices grew 3.1% by the end of June. That's down from the 3.3% annual pace for the month before. Even if prices and interest rates do come down, affordability will continue to be a factor in the slowing of the U.S. housing market.