Weekly Real Estate Monitor for Aug. 9-13

Today's economic update included the Consumer Sentiment data released at 10 a.m., which typically has a more noticeable market impact in its preliminary form earlier in the month. The preliminary report was largely in line with expectations, showing headline sentiment close to consensus and a slight 0.1% decrease in 1-year inflation expectations.

In response, bonds are consolidating within the lower middle of this week's range. Most of the recent market activity has focused on Fed Funds Futures and short-term Treasury yields. This movement was influenced by a WSJ article speculating on whether the Fed might implement a 25 basis point or a 50 basis point rate cut next week. The fact that discussing the possibility of a 50 basis point cut is being interpreted by some as a signal, even though other analysts are also considering both options in their discussions.

Purchase Things Homebuyers Should?Consider For an Upcoming Rate Cut

The Federal Reserve has kept interest rates steady for over a year, but this is expected to change in the coming week. Economic indicators suggest that the need for high rates to cool the economy may be diminishing. Inflation has dropped below 3%, and job growth has slowed by around 30% compared to the average pace of the last 12 months. As a result, the Fed is strongly considering a rate cut at its mid-September meeting.

Homebuyers are paying close attention to understanding how this potential rate cut could affect mortgage rates, home prices, and overall housing demand.?Understanding the Fed's rate and its connection to the housing market?it's important to remember that the Fed doesn't directly set mortgage rates. Instead, it controls the federal funds rate, which is the rate at which banks lend to one another. This rate influences various other interest rates, including those on loans, savings accounts, and mortgages. When the Fed adjusts its rate, it triggers changes throughout the broader lending system.

A Fed rate cut often leads to lower long-term rates, such as the 10-year Treasury yield, which is closely tied to the 30-year fixed mortgage rate. This is why mortgage rates typically drop in anticipation of a Fed rate cut, even before the decision is officially made.?

Market response to rate expectations?

Historically, markets react not only to the Fed's decisions but also to expectations of those decisions. Both the 10-year Treasury yield and mortgage rates often begin declining months ahead of a projected rate cut.

Examples of past rate cuts:

• September 18, 2007: While the Fed officially cut rates in mid-September, the 10-year Treasury yield and mortgage rates began falling in July and August. Mortgage rates had dropped from 6.7% in mid-July to 6.4% just before the rate cut, with further declines occurring afterward.
• July 13, 1990: In the months before the Fed's July rate cut, both the 10-year Treasury yield and mortgage rates had already begun to fall. After peaking at 10.49% in May, mortgage rates dropped to 10.02% the day before the rate cut, though they rose slightly afterward and fluctuated until further rate cuts stabilized them below 10%.

Current trends reflect a similar pattern.?Even though the Fed has yet to lower rates, the 10-year Treasury yield has been easing since May, and the 30-year fixed mortgage rate has followed suit since June. Mortgage rates are now over 100 basis points lower than they were at the end of May 2024, indicating that the market has already factored in some of the anticipated effects of the Fed's upcoming decision. Buyers may want to act sooner rather than waiting for the expected rate cut on September 17.

Predicting the exact impact of a rate cut on mortgage rates is challenging due to the many economic factors involved. However, historically, a 100-basis point reduction in the Fed's rate typically leads to an 87-basis point decrease in mortgage rates. Given that the Fed is expected to cut rates by 50 basis points by the end of the year, mortgage rates could potentially drop to around 5.9% by year-end. Keep in mind, though, that this effect may be somewhat diminished since mortgage rates have already adjusted and are currently over 100 basis points lower than they were at the end of May 2024.

Weekly Highlights:

List prices are still on the rise.?

The median list price?reflected?a 6.1% increase compared to the same week last year. While prices typically rise following Labor Day, they usually ease off seasonally afterward moving towards the new year.?

Contract times are slowing down, as is typical for the fall.?

The median time to go under contract is now 24 days, two days longer than both last week and this time last year. With increasing inventory, buyers may have more options and can take additional time before making an offer.

New listings are also on the rise, further boosting supply.?

New listings saw?a 5.2% increase from last week and a 5.0% increase compared to the same week last year. However, while inventory grows, higher list prices may exceed what some potential buyers are comfortable with or able to afford.