Following the Federal Reserve’s recent 0.5% rate cut last week, entering the housing market may appeal more to those previously hesitant to buy or sell a home. Although the housing market is affected by several economic factors separate from what the Federal Reserve does, mortgage rates have already decreased in the week since it adjusted its rates.
“Since (the) summer of 2022, we have had a lot of hard conversations with clients. Buyers have been pushed into lower price ranges, and sometimes out of the market all together,” Alex McEwen, founder of McEwen Realtors, told the Deseret News. “Sellers have felt impatient with the longer days on market and not being able to command as high of a price as they could have before rates more than doubled.”
“Although prices in Utah did drop about 15% initially, they have been slowly climbing up since mid-2023 and are approaching where they peaked before rates went up. It’s been surprising how resilient home prices have been in the face of rates increasing so dramatically. It says a lot about Americans’ confidence in the long-term health of the housing market. This move was largely expected, and interest rates leading up to this day have already started coming down in anticipation. Now that the change is official, we can expect to see mortgage rates come down a little more. As mortgage rates come down, we will start to see demand increase, which will put upward pressure on prices,” McEwen added.
According to Freddie Mac, the current 30-year fixed mortgage rate is 6.09%, and rates are expected to fall further. However, because lower interest rates could attract people who have been waiting on the sidelines, more people interested in lower mortgages could negatively affect house pricing, raising it higher as competition increases.
“It’s one of those things where you should be careful what you wish for,” Greg McBride, chief financial analyst at Bankrate, told CNN. “A further drop in mortgage rates could bring a surge of demand that makes it tougher to actually buy a house.”
According to the Federal Reserve Bank of St. Louis, the current average cost of a U.S. home in the second quarter of 2024 is $501,700, an $18,000 decrease from the first quarter. Still, most Americans do not make enough income to make mortgage payments, likely keeping younger generations and lower-income individuals out of the market.
The last time the average household could afford a median-priced home was in February 2021. “Back then, the median household income was $69,021, or 5.7% more than the $65,308 needed to afford the typical home,” according to Redfin.