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What will happen to home prices as interest rates are cut?
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Interest rates have been trending downward, with the Federal Reserve implementing its first cut of 2024 in September. Analysts predict more cuts could follow in the final months of this year and into 2025, potentially reshaping the real estate market.
But lower rates don’t always mean better deals or lower home prices. In fact, rate cuts can affect the housing market in surprising ways. Some experts predict rising prices, but declines and stability are also plausible under certain circumstances.
We’ve consulted industry professionals to break down each possibility. Their insights below can help you decide if you should buy a home in the coming months.
Find your affordable mortgage loan options here.
What will happen to home prices as interest rates are cut?
Lower interest rates typically energize the housing market.
“The most likely scenario is that home prices will rise if rate cuts happen amid economic growth and limited housing supply,” says Albert Lord, founder and CEO of Lexerd Capital Management. That’s why he suggests buyers should “act quickly to take advantage of lower rates,” while “sellers may [want to] hold off to maximize offers as demand increases.”
Industry veteran Dean Rathbun echoes this view. The mortgage loan officer at United American Mortgage Company points out that rate cuts often trigger a chain reaction.
“The deeper the cut, the lower the rates… which means more borrowers in the marketplace, creating higher bids for desired homes,” Rathbun says.
Despite this consensus, the housing market’s complexity means different scenarios could unfold. Here are three possible outcomes for home prices in the wake of interest rate cuts.
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1. Home prices will rise as interest rates are cut
When interest rates fall, the housing market usually heats up. Cristal Clarke, luxury real estate director at Berkshire Hathaway HomeServices, explains why: “As lower interest rates make borrowing more affordable, more buyers enter the market.” This usually drives up competition for available homes.
But interest rates going down isn’t the sole factor affecting home prices. A strong economy with a healthy job market and rising wages play a part, too. When these conditions align with low housing inventory, “demand can outpace supply, leading to upward pressure on home prices,” Clarke says.
2. Home prices will drop as interest rates are cut
While lower interest rates often boost home values, it’s not a guaranteed outcome.
Clarke warns that a significant economic downturn could lead to price drops, even with rate cuts. This less common scenario can happen when broader economic factors override the benefits of cheap borrowing.
She shares several conditions that could trigger this unexpected result.
“[More] job losses or [low] consumer confidence might [give] buyers [pause], [even with] lower interest rates,” Clarke explains. Add to that high inflation eroding purchasing power or tighter lending standards, and you’ve got a recipe for potential price decreases.
In such cases, a surplus of homes on the market and fewer interested buyers could force sellers to lower their asking prices.
3. Home prices will remain the same as interest rates are cut
In certain cases, home prices could stay put, even when interest rates drop. According to Clarke, we may see steady home prices if the housing market maintains an equilibrium between supply and demand — even as interest rates decrease.
She points to high-demand areas including Santa Barbara and Montecito as examples. These places are always popular “due to [their] desirability and the rise of remote work,” Clarke says. Limited inventory can prevent significant price fluctuations in a given area, such as coastal cities.
Benefits of buying a home now even at higher rates
Waiting for lower rates might seem logical, but it could cost you in the long run.
“When rates drop, buyers [flood the market] and prices tend to go up,” cautions Rathbun. This can drive up home prices, forcing you to overbid just to secure a property.
Buying now, even with higher rates, can work in your favor in the following ways:
- Less competition: With fewer buyers in the market, you’re more likely to get your dream home without a bidding war.
- Potential for refinancing: If rates drop later, you can refinance to lower your monthly payments.
- Building equity sooner: The earlier you buy, the sooner you start building wealth through homeownership.
- Predictable payments: Unlike rent, your mortgage payments won’t increase (with a fixed-rate mortgage)
- More negotiating power: Sellers might be more willing to work with you when there are fewer buyers around
The bottom line
The impact of interest rate cuts on home prices isn’t always predictable. While lower interest rates may lead to higher prices, economic conditions can sometimes result in price drops or stability. Instead of trying to time the market, focus on your current situation and long-term goals. If you find a home you love and can afford the payments, it might be wise to act now.
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Mark Harmon, widely known for playing Special Agent Leroy Jethro Gibbs on the hit CBS drama “NCIS,” is stepping behind the camera as the executive producer and narrator of a new spin-off prequel, “NCIS: Origins.”
After nearly two decades in the role, Harmon is now helping bring to life the early years of Gibbs, with actor Austin Stowell portraying a young version of the iconic character.
“You come in and audition here for years and years, and all of a sudden, you’re presented with a badge with your name on it,” Stowell said about now working on the Paramount lot.
The show’s set features scenes at Camp Pendleton, including locations like Daley’s Tavern, a bar just off-base. For Stowell, it is a role of a lifetime.
“I felt very confident in what I could bring to the character, and then the second you walk in the room, that all goes out the window,” Stowell said.
Casting the role of young Gibbs in “NCIS: Origins” was a significant decision for the team, as it meant finding someone to take on the character that Harmon made iconic. The prequel, set in 1991, explores Gibbs’ early days as a rookie agent.
Harmon saw the project as an opportunity to dive deeper into the character’s backstory, introducing a Giibbs that has never been seen before in the original series.
“This is a chance to really kind of dig into it,” said Harmon
The role also brings a more personal and emotional storyline for Gibbs, one that explores his grief after the loss of his wife and child.
“He’s in rough shape,” Harmon said.
Stowell has drawn on his personal experiences to portray Gibbs’ pain. His father died by suicide four years ago.
“Loss is something we all deal with and for Gibbs, this is something that has cracked him to his core, said Stowell.
Harmon has been a steady presence on set, offering guidance to Stowell and the rest of the cast.
“From day one, Mark has been available,” Stowell said. “He’s so good at allowing the people who are on this show to feel like they are supported.”
Harmon made it clear that this new chapter of “NCIS” belongs to the younger cast.
“I’m there to help and to talk to them or to tell them what I remember from being in this for a while. But this is their thing,” Harmon said.
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After a four-year period in which interest rates hit record lows and then rose to decades-highs, the Federal Reserve started cutting interest rates again in September. A half a percentage point cut, sparked by cooling inflation numbers, was issued on September 18. And with unemployment and inflation declining in September, too, additional cuts of 25 basis points each look likely for the next two Fed meetings in November and December.
While this is welcome news for borrowers, it will detract from the big returns savers have been accustomed to in recent years. This is particularly true for those who have opened or are considering opening a certificate of deposit (CD). That said, CD interest rates haven’t declined so dramatically as to render these unique savings vehicles unworthy. Savers can still earn hundreds and potentially thousands of dollars with the right CD account – even now.
But there are some smart CD moves savers should make now, before the next rate cut, to earn that big return. Below, we’ll break down three of them.
Start by seeing how much more you could be earning on your money with a top CD here.
3 smart CD moves to make before the next rate cut
While CDs are still a safe and predictable way to earn a substantial return on your money, this high rate cycle could soon be coming to a close. Savers who have yet to take advantage, then, or those considering another account, should make the following moves now — before the Fed takes additional action:
Determine your budget
The more you deposit into a CD the more you’ll earn. That simple calculation, however, doesn’t account for any early withdrawal penalties you’ll need to pay if you withdraw your money prematurely. These penalties range from lender to lender but they can easily negate any earnings you’ve accumulated to that point. So, first, determine your budget. Figure out precisely how much you can afford to deposit and for how long you can lock it away. Once you have this amount and length of time (CD term), determined, you’ll be ready to take next steps.
Get started with a CD online now.
Shop around for lenders
Don’t just head to your local bank branch to open a CD. Often, the best CD rates and terms are found with online banks versus those with physical locations. But even all online lenders are not the same as some will require higher minimum deposits or other requirements to earn a high rate. So shop around for lenders to find one offering the best rates for the amount of money you’re comfortable depositing. And be sure to understand the early withdrawal penalties and any other fees or maintenance costs that could affect your returns before getting started.
Open a long-term CD
A long-term CD will mature anywhere between 18 months and 10 years. Once you’ve determined how much money you can comfortably afford to deposit, consider one of these accounts instead of a short-term one now. Currently, short-term CDs have slightly higher rates than long-term ones do. But those accounts will mature in just a few months, at which point rates will likely be lower. But long-term CDs have competitive rates now (in the 4% to 5% range), allowing savers to earn big returns for years to come, even if the larger rate climate cools during that time frame. And because of the locked rate nature of these accounts, you’ll be able to determine with precision your exact earnings upon account maturity.
The bottom line
Rate-cutting action on behalf of the Federal Reserve should spur savers who haven’t take advantage of the current high rate climate (or those who want to continue to) to make a move now – and they should do so with a CD. Specifically, savers should determine their budget in order to deposit as much as they can comfortably afford. But they should also shop for lenders to find one offering the highest rates, specifically for long-term CDs, which can help savers weather what appears to be a cooling rate climate.
Have more questions? Learn more about your current CD options here.