The Federal Reserve's 50-basis-point interest rate cut brought relief to many potential home buyers, but even with mortgage rates starting to fall, some aren't ready to jump back into the market just yet.
Coldwell Banker Realty CEO Kamini Lane joins Wealth! to discuss how the Fed's rate cuts have impacted the housing market and whether now is the right time for homeowners to consider refinancing.
Lane explains that the rate cut was "really well received," especially as the housing market is facing an affordability crisis. She notes that housing affordability is at its lowest rate since 1985. Thus, the Fed's rate cut helped get some buyers off the sidelines.
"A lot of it is psychological, right? People have been waiting to see some movement by the Fed, and they saw that movement. And I think that that is going to spur an increase in affordability, which should loosen supply because we've seen that lock-in effect with people who had historically low long-term mortgage rates and were unwilling to give that up. So it should ease that lock-in effect, get more inventory on the market, and that, in turn, will get more buyers on the market," she tells Yahoo Finance.
The Federal Reserve's bold rate cut last week brought relief to many potential home buyers. But even with mortgage rates slowly starting to ease, most buyers are still staying on the sidelines over concerns about affordability. Can future rate cuts, though, transform this stale housing market into a stable one? Here to share her insights, we've got Camini Lane, who is the Coldwell Banker CEO. Great to hear you, great to have you here with us. Um, first and foremost, I mean, just in what you're seeing in the data yourself and and the engagements that Coldwell is having with some of its potential clients, how are you seeing people go about the thought process of purchasing a home right now, especially with some of the mortgage rate slippage and continuing rate cuts that are anticipated?
Yeah, absolutely. Well, you know, I think that the the rate cut was really well received, right? I think it had been kind of on the horizon for a little bit of a little while, highly anticipated, and it was it was a great thing to see because, you know, as we've been discussing, we really are in a bit of an affordability crisis in the US today with housing affordability at the lowest rate since uh since 1985. And so I think that the rate cut did get people off the sidelines, and, you know, a lot of it is psychological, right? People have been waiting to see some movement by the Fed, and they saw that movement. And and I think that that is going to spur an increase in affordability, which should loosen supply, right? Because we've seen that lock-in effect with people who had historically low, long-term mortgage rates and were unwilling to give that up. So it should ease that lock-in effect effect, get more inventory on the market, and that in turn will get more buyers on the market.
Camini, when we think about the real rates that mortgages would need to come down to to ignite a totally new wave of buyers to come in, what is your projection there? What would we need to see rates come down to to even have first-time home buyers or home buyers that have been sidelined for years really say, okay, now I think I can make sure that I'm able to take out a mortgage and then give myself good terms for a longer period of time?
Well, rates right now are around the low 6 percents, right? And and while that is a lot higher, let's be honest, it's a lot higher than it was post pandemic, those two and three and four percent rates that people got used to very quickly. The reality is the low six percents is very much in line with US historical averages. Now, I think what we need to see is another cut, right? And we need to see more inventory on the market. We need to see price increases stabilize. I think the combination of all of those factors is what's going to get buyers off the sidelines. It's what's going to address the inventory constraints. It's going to going to address the affordability concerns, and it's going to get the market moving. All of that said, we still are in a robust housing market. Well-priced inventory is absolutely moving, and in many of our uh metros across the United States, our days on market are just a couple of weeks. And and we look at a balanced market as closer to sort of 50-ish days on market. Most of our uh metros are nowhere near that.
Is now a good time to refinance your mortgage if you've taken one out over the past few years and or or even if more broadly you just are looking at the market and saying, hey, these seem like more favorable terms?
Well, uh, you know, that that really depends on the terms of your mortgage, right? Um, rates have come down, but again, they are they really aren't close to the rates that we saw post pandemic. Uh we have a record number of people who have fixed 30-year mortgage rates that are in those 3 percents. Now, if you have a a mortgage and today's current rates and current terms are better than the mortgage that you have today, then absolutely, it's a great time to refinance. And, you know, the reality is on a $400,000 loan, just one percentage point decrease in your rate is about $250 a month, and that is significant.
Related Videos
As mortgage rates hover around 6%, Lane notes that it's still much higher compared to the roughly 3% rate in 2020 and 2021. However, she highlights that the low 6% range is "very much in line with US historical averages."
For more buyers to confidently enter the market, she believes interest rates must continue to fall, more inventory needs to be added, and price increases have to stabilize: "I think the combination of all of those factors is what's going to get buyers off the sidelines. It's what's going to address the inventory constraints. It's going to address the affordability concerns, and it's going to get the market moving."
While many homeowners are considering refinancing now that the Fed has kicked off its rate-easing cycle, Lane explains that refinancing may be for everyone.
She explains, "That really depends on the terms of your mortgage, right? Rates have come down, but again, they really aren't close to the rates that we saw post-pandemic. We have a record number of people who have fixed 30-year mortgage rates that are in those 3 percents. Now, if you have a mortgage and today's current rates and current terms are better than the mortgage that you have today, then absolutely it's a great time to refinance. And you know, the reality is, on a $400,000 loan, just one percentage point decrease in your rate is about $250 a month. And that is significant."