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The Federal Reserve recently slashed interest rates by half a point to their baseline borrowing rate, yet treasury yields have been moving higher. Some experts interpret the Fed’s focus on supporting the softening labor market as a willingness to tolerate slightly higher inflation than normal. Those of us in the mortgage industry are familiar with this phenomenon.
For those outside the mortgage space, it’s important to remember that when you hear about the Fed cutting rates, mortgage rates may actually increase. This is often because the market has already factored in the anticipated rate cut.
An interesting parallel has emerged between current market conditions and those of 2007. In May 2007, we saw a 7.8-month supply of new homes and 1.164 million homes under construction. The Fed then cut interest rates by 50 basis points in September 2007. Fast forward to August 2024, and we’re seeing remarkably similar numbers: a 7.8-month supply of new homes and 1.509 million homes under construction. Once again, the Fed has cut rates by 50 basis points in September, this time in 2024.
This similarity raises questions about what might happen in the coming years. If we consider the events following the 2007 rate cut as a potential indicator, we could be in for some challenging times ahead.
In other housing market news, the median down payment for a house in the US has reached $64,000, which is 15.36% of the median-priced home of $416,700. Interestingly, home-buyers aged 25-33 rely heavily on gift funds for their down payments. Down payment amounts vary significantly by state, with California averaging $153,000 and Mississippi only $8,000.
On a positive note, the recent hurricane wasn’t as severe as forecasted, though many homes were still affected. However, the inventory of new spec houses across the country is at its highest since 2009. Sales have jumped, and the inventory of new completed houses increased by 46% year-over-year and by over 200% since mid-2021, reaching 104,000 houses in August – the highest since November 2009, according to Census Bureau data.
The combination of lower rates and increased inventory presents opportunities for both home-buyers and mortgage brokers. The housing market is experiencing its biggest logjam of inventory since before the pandemic, which could be beneficial for the industry.
As mortgage professionals, we must remember that while we can’t control prices, rates, or market conditions, we can influence people’s decisions to buy homes. With rates down and inventory up, we have more options to offer potential buyers. Some of the best years in the mortgage industry came after the 2007-2008 financial crisis, demonstrating that it’s possible to create your own market and reality, especially with increased inventory.
In conclusion, while the current market conditions present both challenges and opportunities, staying informed and adaptable will be key to success in the evolving landscape of real estate and mortgage lending.
