How Recent Fed Rate Cuts Are Impacting Mortgage Rates

By Mike Gray

When it comes to providing peerless customer service and fulfilling the needs of his clients, if Michael Gray tells you that “the sky’s the limit,” he’s not kidding. Formerly an airline pilot, where attention to detail and focus are crucial and following a process is absolutely necessary to achieve proper results, Mike learned early in his real estate career how well those skills transfer and how important they are to the buyers and sellers with whom he works.

Where are interest rates headed, and what does that mean for the housing market? If you’ve been following the news or looking to buy or sell a home, you’re probably wondering how interest rates are affecting things. That’s why I sat down with Chris Moore, president of Gibraltar Mortgage, to get his insights. Let’s break it down:

Where are interest rates headed? We’re hearing that the Federal Reserve may lower rates a couple of times this year, but here’s the reality: that doesn’t mean we’ll be seeing rates drop down to the 3% range we saw a few years ago. While we may see a rate cut, it won’t lead to the same low mortgage rates we saw before.

Even if the Federal Reserve cuts rates, don’t expect those drops to show up in mortgage rates right away. We’re looking at rates staying between 6.5% and 7% for the rest of the year. While rates are shifting, they’re not dropping back to the ultra-low levels we had in the past.

How Federal rate cuts affect mortgages: When the Fed lowers rates, it primarily impacts short-term loans. This includes things like credit cards, car loans, and even appliances. These loans tend to adjust quickly when the Fed cuts rates. On the other hand, mortgage rates take a bit longer to adjust. If you’re tracking mortgage rates, keep an eye on the 10-year Treasury bond, which is sitting at 4.53% as of today. Add about two points to that number, and that’s where you’re likely to see mortgage rates.

Expect rates to stay between 6.5% and 7% this year. If you’re holding out for rates to go back to the 3% range, you’re likely going to be waiting a while.

Is affordability getting better? Affordability is a big issue for a lot of buyers right now. Between rising insurance costs, high property taxes, and mortgage rates, buying a home can feel like a huge challenge. But here’s the thing, when mortgage rates jumped up in 2022, they did it quickly. Buyers who were used to the 3% to 4% range found themselves facing rates much higher than that. It was a bit of a shock to the system.

But here’s some good news: A lot of buyers think a mortgage rate of 5.5% would be ideal. We’re starting to see that shift happen, but it’s going to take some time.

Housing market trends: What’s going on with the housing market itself? Inventory is starting to rise. In places like Houston, there are over 32,000 homes available for sale. This is a big shift from the low inventory we saw during the pandemic housing boom. Normally, the market has about five to six months of inventory, and we’re starting to see things move back toward that level.

But just because inventory is going up doesn’t mean home prices are going to drop. Even with a small drop in mortgage rates, home prices are expected to remain stable.

Affordability solutions: One option for making things a bit more affordable is discount points. Here’s how they work: if you’re a seller, you can offer discount points to buy down the buyer’s mortgage rate. For example, if the mortgage rate is 6.99%, you could offer to lower the rate by 1%. This can make a big difference in the buyer’s monthly payments.

For buyers, you can negotiate for discount points as part of your deal. For instance, on a $500,000 home, you could negotiate $5,000 in discount points to help lower your mortgage rate.

So, what does all this mean? For the rest of the year, we’re looking at mortgage rates staying between 6.5% and 7%. It’s not a huge drop from where we are now, but things are steadying out. While inventory is rising, home prices are expected to remain stable.

If you’ve got questions or need advice on navigating this market, don’t hesitate to reach out. We’re here to help you make the right move, no matter what the market’s doing. Give us a call at 832-428-6453 or send us an email.