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Will home prices rise with more Fed rate cuts? Here’s what experts think.
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During the pandemic, plunging mortgage rates and limited inventory sent home prices skyrocketing. Then, as the Federal Reserve’s inflation-fighting efforts led to an increase in the benchmark interest rate in the post-pandemic era, mortgage costs climbed without an accompanying drop in home prices. Purchasing a property started to feel impossible for many.
The good news is, the Federal Reserve recently cut the benchmark rate, giving homeowners renewed hope that mortgage rates would decline. Today’s mortgage rates are over a point below recent peaks, and while the rate forecast for October isn’t as favorable, some would-be buyers are coming off the sidelines anyway and finally getting ready to purchase a home.
There’s just one problem. While potential buyers may have been dreaming of a home price drop to accompany lower rates, there’s a chance the reverse will happen. We asked some experts for their input on where prices are likely to trend now that rates have begun to decline.
In the market to buy a new home? See what mortgage rate you could qualify for here.
Will home prices rise with more Fed rate cuts?
Unfortunately for borrowers hoping for more affordable housing this fall, the laws of supply and demand aren’t working in their favor.
“Builders really stopped building homes in mass in 2008,” says Aaron Gordon, branch manager and senior mortgage loan officer at Guild Mortgage. “We have tens of millions more people in the US today. That problem has been slowed by higher mortgage rates and lower demand but will rear its head again once demand increases.”
Lower rates could trigger that increase, especially as 38% of potential buyers have been waiting for rates to drop before making a purchase, according to a Realtor.com survey. When all those buyers start taking action and making offers on properties, increased competition could push prices higher as buyers fight for available homes.
“More homebuyers have already come to the market and off the sidelines in the last few months as rates have been steadily declining,” according to Sean Adu-Gyamf, a real estate broker at Coldwell Banker Warburg. That trend is likely to accelerate. “I expect home prices will begin to rise if interest rates continue to fall,” he says.
Of course, if more sellers start listing properties in response to an increase in potential buyers, the resulting supply bump could offset price surges that often accompany a sharp rise in demand. But there’s no guarantee this will occur in the coming months and some evidence suggests it won’t happen.
“There is a shortage of new developments and current owners have recently invested more money in their homes to stay in them longer, not sell them,” Tate Kelly of Coldwell Banker Warburg says. If sellers are slow to enter the market, would-be buyers are all but certain to be looking at price surges that make properties harder to afford even at a lower rate — at least for the time being.
“Prices have leveled out in most areas over the last year, but we believe that lower mortgage rates will enable buyers to get back into the game more quickly than sellers, and that at least in the short run prices will have another run-up,” warns Jon Bodan, President & Founder of The Perpetual Financial Group, Inc. and strategic financing advisor at HouseCashin. “With increased housing demand fueled by lower rates, and with already constrained supply, we see another imbalance coming, but for how long is anyone’s guess.”
See how low of a mortgage rate you could lock in online now.
Other considerations
While projections of future price increases are unwelcome news for those waiting to buy, the good news is prices aren’t likely to soar immediately as rates simply haven’t declined enough yet to stimulate a massive increase in buyers.
“In my opinion, in the short term, home prices will be fairly stagnant,” Gordon says. “However, once rates get below 6%, and stay there for some time, the demand for homes will increase and inventory will be absorbed once again, driving home prices up.”
Adu-Gyamfi agrees, reporting that “there are still folks waiting for the national average of a 30-year fixed to be below 6%. If and when that happens, we expect there to be not only a rise in home prices but more bidding wars as well.”
Realtor.com’s data supports this theory, as just 6% of Americans say they’d buy a home in the next six months if mortgage rates fall between 0.25 and 0.75 percentage points compared to 28% who are waiting for a two percentage point decrease. With average mortgage rates at 6.25% now, it could take some time before buyers are ready to act. When that 6.00% threshold is broken, however, conditions could shift.
“Before we see prices rise, we need to see a larger buyer pool re-entering the market,” according to Kate Wollman-Mahan, an agent at Coldwell Banker Warburg. “We are in a very patient market right now where buyers have no real sense of urgency unless a property is very attractively priced. Once buyers’ confidence returns – and rates are certainly an important part of that – we can expect to see prices rise.”
Of course, outside events should shake that confidence, with Kelly warning that “there are also other factors at play in our current market that aren’t real estate related that I think are still causing the market to remain a bit stagnant in terms of pricing and activity. Some of these factors include the conflict in the Middle East, the war in Ukraine, the upcoming elections, and, most recently, the weather disasters hitting the Southeast.”
Still, barring any major outside events, price increases are likely to result if rates do continue to drop and especially if they break the 6.00% barrier. Buyers who don’t want to get priced out may want to consider purchasing sooner rather than later at today’s current prices and then refinancing their home loans later if rates drop further.
Have more questions? Learn more about your current mortgage options here.
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These days, you’ll find Peggy Noonan in many places: in front of commencement crowds, at political round tables, and for the past quarter-century, in the opinion section of the Wall Street Journal. But when she was just starting out in Washington, D.C., you could find Noonan at the Off the Record Bar, near her job at the White House. “I would sit over there by myself, I would order a beer or a glass of wine, and I’d just quietly sit and read,” she said.
In 1984, Noonan joined President Ronald Reagan’s staff, after working at CBS in New York. At first, she felt like an outsider in the buttoned-up West Wing, but soon became an acclaimed speechwriter. Early on, she wrote Reagan’s moving speech for D-Day’s 40th anniversary.
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Then, when the Challenger shuttle tragically exploded, Noonan was given a tough assignment: write Reagan’s address to a distraught nation. “I had a feeling of, that didn’t work, nothing worked, because nothing was worthy of that moment; nothing was worthy of that day,” she said. “But then Frank Sinatra called – he called that night to the White House to say, ‘Mr. President, you just said what needed to be said.’ And Frank didn’t call after every speech!”
By the late eighties, Noonan had cemented a reputation as a wordsmith, and Reagan turned to her for his farewell address:
“We made the city stronger, we made the city freer. All in all, not bad, not bad at all.”
George H.W. Bush turned to Noonan, too, as he rallied Republicans on his way to the White House. “You know, part of life is luck,” she said. “It was not lucky to follow dazzling Ronald Reagan and be plainer, seeming sturdy George H.W. Bush. But I believe history was not – certainly in his time – sufficiently fair to him.”
That opinion is one of many found in the pages of her new book, “A Certain Idea of America,” a collection of her recent work (to be published Tuesday by Portfolio).
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Asked what her idea of America is today, Noonan replied, “Big, raucous, troubled, frayed.”
Noonan’s columns often delve into questions of character and leadership. “What I do not perceive now is many politicians who are actually saying, Guys, this is not good for the country. We’ve been given this beautiful thing called America. Shine it up! Keep it going!”
Costa said, “You have a lot of fun in this book, doing what you call taking the stick to certain people from time to time.”
“I don’t mind the stick at all,” said Noonan. “When I see something that I think is just awful, I love to get mad at it. I got mad at John Fetterman.”
“You don’t like that he’s wearing shorts?”
“It’s okay with me that he wears shorts,” she replied, “but he is not allowed to change the rules of the U.S. Senate to accommodate him in his little shorts and hoodie because he enjoys dressing like a child.”
Noonan, now 74, grew up in the Democratic strongholds of New York and New Jersey. “And I was very happy with that, because Democrats were cooler than Republicans,” she said. “Democrats were little Bobby Kennedy, and Republicans were, like, Dick Thornburgh!”
But in Reagan, she saw something fresh. “You looked at him, you saw his confidence, and it made you feel optimistic,” she said.
The Gipper, of course, no longer dominates the Republican Party, and President-elect Trump’s victory could transform the GOP even more in the coming years. “In terms of policy, the Republican Party has changed by becoming, not a standard, usual conservative party, but a populist party,” Noonan said. “Its issues have changed very much. But also, the edge of anger and resentment and, I’m afraid, a little paranoia that is in the Republican Party now would be something that Reagan did not recognize.”
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At the Off the Record Bar, the faces on the wall – caricatures of politicians of the past – and at the tables still catch her eye. For Noonan, it’s all part of the story – America’s, and her own.
Costa said, “In a way, you’re still the writer in the corner watching everybody at the bar in Washington.”
“Yeah, I like to watch them, she said. “They’re human, and you bring a little warmth to it, a little humor, and always bring your stick and smack them when you need to! It’s kind of nice.”
READ AN EXCERPT: “A Certain Idea of America” by Peggy Noonan
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Story produced by David Rothman. Editor: Joseph Frandino.
