What Do the Fed Rate Cuts Do for Housing Prices?

The Weekly Recap

Good morning and happy Friday! Mortgage rates fell to their lowest levels in two years as refinance activity picks up while the Fed officials continue to leave the door open to more rate cuts before the year is out. Luxury contracts in Manhattan and Williamsburg soar in September, the US economy grew 3% last quarter, Mayor Adams has been indicted on some pretty serious federal corruption charges, the old Goldman Sachs headquarters in NYC was converted to rental units and steak deflation is hitting more NYC restaurants.

If you missed last weeks newsletter on It Officially Being Rate Cut Season, you can read that through the link.

What Do the Fed Rate Cuts Do for Home Prices?

Now that a week has passed since the Federal Reserve has lowered its benchmark interest rate, we can expect a significant impact on the housing market. Seeing that mortgage rates dropped again this week, even though ever so slightly, shows that while rate cuts were priced into the market they still had a positive impact on rates. Here is how last weeks rate cut and potential future rate cuts will impact the market.

Increased Demand: As borrowing becomes cheaper, more people may be motivated to buy homes, leading to an increase in demand. With higher demand, especially if housing supply is limited, prices may rise due to competition among buyers.

Affordability Impact: While lower mortgage rates can make monthly payments more affordable, they can also push prices higher, potentially offsetting the benefits of the rate cut. In markets where housing inventory is tight, price increases may quickly erode the affordability advantage from lower rates.

Refinancing Activity: Homeowners with existing mortgages may take advantage of the lower rates by refinancing their loans. This can lead to increased economic activity, as homeowners who reduce their monthly payments may spend more in other areas, possibly leading to a more robust housing market and overall consumer spending.

Investor Activity: Lower interest rates can also make real estate a more attractive investment compared to other asset classes, like bonds, whose yields fall when rates drop. As more investors seek real estate as a safe-haven investment, this can drive up housing prices in certain markets.

Housing Supply: The most valuable entity that homeowners have had over the last few years is their interest rate. Purchasing a home in 2018-2020, some homeowners have had sub 3% interest rates and the delta between where they bought and where they would need to sell has been too high. With lowering rates homeowners may begin to feel comfortable listing their homes creating a much needed increase to supply levels nationwide.

As long as America’s housing shortage continues, home prices could remain elevated. Lower mortgage rates will motivate more people to try to buy, spurring more demand, which could push up prices which is a phenomenon that many homebuyers experienced during the first half of the pandemic.

Market Performance

Here are how some other indexes and asset classes have performed as of this morning’s opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past WEEK as well as newly signed contracts in Manhattan.

Mortgage Rate Update

Although this week’s decline was slight, the 30-year fixed-rate mortgage fell to its lowest level in two years. Given the downward trajectory of rates, refinance activity continues to pick up, creating opportunities for many homeowners to lower their monthly payments.

News You Can Use

• Fed Expects More Rate Cuts Before the End of the Year Bloomberg

• Mortgage Rates Fall to Lowest Level in Two Years Reuters

• Mortgage Refinance Boom Takes Hold As Weekly Demand Surges 20% CNBC

• Homeowners Eye Over $4000 in Annual Refi Savings as Rates Drop Bloomberg

• Goldman’s Old NYC Headquarters Turned Into $4000-a-Month Rentals Bloomberg

• Manhattan Luxury Contracts Roar Through September The Real Deal

• US Economy Grows at 3% Annualized Pace in Second Quarter Yahoo Finance

• New Home Sales Dropped Less Than Expected Ahead of Fed Rate Cut NY Post

• Looking For the Lowest Home Home Prices in the NY Metro Area? Here is Where to Find Them Property Shark

• US M&A Activity Shows Gains As Election Looms Axios

• NYC Mayor Eric Adam’s Indicted After Federal Corruption Probe Bloomberg

• NYC’s Outer Boroughs See Prices Rise as Rental Demand Increases NY Post

• Steak Deflation Hits NYC Restaurants With $35 Beef Menus Bloomberg

The Deep Insight

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