Unprecedented 2-Day Plunge in Interest Rates Sparks Optimism for 2024s Housing Market

Seizing the Opportunity: Why Now Might Be the Perfect Time for Your Real Estate Move

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Something big occurred just yesterday in the housing world--one of the biggest 2-day drops in interest rates we've seen in decades!

On Wednesday, the Federal Reserve met and Chairman Jerome Powell spoke at the last Federal Open Market Committee (FOMC) meeting of the year. Ultimately, the Fed signaled that additional rate hikes in the near term are not expected and unlikely and alluded to a potential for 3 rate decreases throughout the coming year.

While the Federal Reserve doesn't directly establish mortgage rates, these rates align with market expectations influenced by the Fed's decisions on short-term rates. The positive expectations evident in the Fed's Wednesday projections further emphasize this correlation. The bond market, of course, loved the news, and traders began pricing The Fed's anticipated actions and dovish tone into the interest rates.

The result was that the prevailing rate dropped to the lowest we've seen since May 2023, making up for a lot of lost ground along the way.

Mike Fratantoni, Chief Economist of the Mortgage Bankers Association said: 

“Additional rate hikes no longer appear to be part of the conversation. It is all about the pace of cuts from here. This is good news for the housing and mortgage markets. We expect that this path for monetary policy should support further declines in mortgage rates, just in time for the spring housing market. We are forecasting modest growth in new and existing home sales in 2024, supporting growth in purchase originations, following an extraordinarily slow 2023.”

What does this mean for housing, and for you?

Housing professionals expect further declines in mortgage rates and busier 2024 market. And it stands to reason.

If you're considering buying a home, you can expect rates to likely move lower (more affordable). Since rates hit their recent peak of over 8%, homebuyers have gained hundreds of dollars in savings per month on mortgage payments due to the improved rates.

In this video, released just this morning on YouTube, Brian Dewald, a local lending partner, spoke of a veteran family he helped close on a deal with a 30-year fixed rate of just 6.25%. Homebuyers currently in the market are finding that they're able to reach new thresholds of affordability or have homes, otherwise thought to be out of their price range, come back into focus for consideration.

An Encouraging Winter Market 

Since Thanksgiving, the mortgage industry has experienced a significant uptick in business, driven by homebuyers seizing the opportunity presented by lower rates. Concurrently, there has been a modest increase in new listing activity in recent weeks, providing additional choices for prospective homebuyers.

In the current market, approximately two-thirds of existing mortgages still boast rates below 4%, and more than 90% have rates below 6%. This dynamic hampers inventory growth as homeowners are hesitant to part with their advantageous low-rate mortgages.

However, a shift is anticipated in 2024, as noted by Lisa Sturtevant, Chief Economist at Bright MLS. Life changes, whether familial or financial, are expected to compel more homeowners to sell, even if it means relinquishing their favorable, much-lower rates.

"With falling rates and heightened new listing activity, it is anticipated that the unusually busy December market will extend into January, as both buyers and sellers strive to gain an edge before the spring market," remarked Sturtevant in a recent statement.

Cautiously Optimistic

With moves this big, there is a risk of a corrective bounce. And progress will not be linear–2024 will continue to bring periods of ups and downs.

Economically, despite strong retail sales and NY Fed Pres Williams’ attempt to squash the exuberance this morning, continued optimism prevails with the 10-yr dropping to 3.9% and the 30-yr fixed to 6.625%.

Bottom Line

Real estate decisions often take time to unfold. Yet, when a promising opportunity arises, it's advisable for prospective homebuyers to act promptly. These moments of advantage and opportunity in the real estate game can be brief, and seizing them could prove beneficial long-term.