The Fed Just Cut Interest Rates: Is Now a Good Time to Buy a House?

Key takeaways:

• The Fed just lowered their interest rate benchmark by 0.5%, which is good news for homebuyers waiting for lower mortgage rates.
• If you want to beat the competition, now is a great time to buy a house.
• Daily average mortgage rates dropped to 6.12% on Monday before the announcement, giving buyers thousands of dollars in buying power compared to July.
• Don’t wait to buy; buyers who were scared off by high rates have started entering the market, which may boost prices.

As of Monday, September 16th, daily average 30-year fixed mortgage rates have fallen to 6.12%, their second-lowest level in nearly two years. This is a nearly 0.3% drop from the initial decrease on August 5th and far below the 7.5% peak in April. In fact, homebuyers today have gained over $30,000 (around $200 per month) in purchasing power since just the beginning of July. Median monthly housing payments fell to $2,534 on September 1st, the lowest level since January.

Plus, the Fed announced a surprising 50 bps (0.5%) rate cut in their meeting on September 18th. More gradual 25 bps cuts are expected from here on out. Markets were expecting a faster round of cutting ahead of today’s meeting, so mortgage rates will likely tick up slightly in the next few days before leveling out. 

In large part because of steadily improving inflation, mortgage rates have slowly decreased since May and have fallen by over 1.10% since this time last year. Larger year-over-year improvements are possible as we head into October, which last year saw rates climb past 8% for the first time in over 20 years.

More good news for homebuyers: total listings are also up 20% compared to last year, as more sellers enter the field. The market seems poised to give buyers a break. So, if you’re considering buying, you might be wondering “should I buy a house now or wait?”

Is now a good time to buy a house? 

The short answer: Yes, if you have the means, it’s a good time to buy a house before the market catches up. Waiting for rates to fall further leaves you at risk for increased competition among buyers and subsequent price hikes from sellers. Sales are still sluggish, so now may be the time to act.

Buying a house now means you’re also maximizing your investment potential. Lower rates save you money over your loan term and mean more of your mortgage payments can go towards building equity. 

It’s worth noting that the market has been topsy-turvy recently, though. For example, higher mortgage rates typically push house prices down, but they have had the opposite effect over the past two years. Also, declining inventory typically leads to more competition, but prices have been too high for many buyers to afford, causing some homes to sit unsold and others to sell in a few days.

Additionally, economists aren’t positive about what will happen with mortgage rates in the coming months, and housing prices are still near a record high. This week started with good news, but it’s important to be prepared for any surprises that may come.

Will mortgage rates fall further in 2024?

Today’s mortgage rates reflect what investors think the Fed will do. Investors believe the Fed is done limiting inflation and expect a gradual decline in mortgage rates through the end of the year. 

In other words, economists don’t expect mortgage rates to drop significantly more than they already have, because rates have already priced in the recently announced interest rate cuts.

How did we get here? 

In the past decade, there has been a severe shortage of homes. This is part of what caused the housing boom in 2021-2022; too many buyers were fighting for a tight supply of homes, leading to skyrocketing prices. Record-low mortgage rates also fueled the frenzy. (Low supply was partly due to a chronic underbuilding of homes since the 1980s.) 

However, in 2023 and 2024, as construction rebounded and inventory began slowly recovering, prices kept rising even as mortgage rates remained high. Higher rates typically cause a drop in demand and prices. However, this didn’t happen, because many homeowners had pandemic-era rates and were unwilling to give them up, creating a further shortage of homes for sale. 

This was a unique trend that continues today – the national median sale price hit a record high in June and many people are still avoiding the market altogether. Those who are buying are often doing so in affordable places like Texas and Upstate New York. Even though inventory is rising and sales are low nationwide, house prices are at record highs and show little signs of falling. 

However, the recent dip in mortgage rates has given homebuyers a burst of hope.

Home sellers should get ready for competition 

Recent drops in mortgage rates sets the stage for more buyers entering the market, meaning more competition for listings. 

This is because house hunters scared off by high mortgage rates have been waiting on the sidelines for years, especially as inventory flagged due to sellers wanting to hold on to their pandemic-era rates (the lock-in effect). Now that rates are dropping, more buyers are deciding to enter the market.

Should you lock in your mortgage rate today? 

If you have the means, now is a great time to lock in a low mortgage rate. Rates haven’t been this low in nearly two years. 

Lower rates mean you can qualify for a larger loan amount or enjoy lower payments within your current budget. If rates still feel too high, you can buy down your mortgage rate, too. 

All-cash buyers hoping to avoid mortgages altogether should also act now to avoid probable price hikes as rates continue to drop. 

Final thoughts

If you’re in the market for a house and have been scared off by high rates, now is a great time to connect with an agent and start your home search. Rates are expected to continue trending slowly downwards, and the market is gaining momentum. The longer you wait, the more competition you’ll see.

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