Interest Rates Going Down, Time to Buy a House?

On September 18, 2024, the Federal Reserve lowered the benchmark federal funds rate one-half percentage point to a range of 4.75% to 5.0%. It was the first rate cut since the Fed continuously raised the federal funds rate from March 2022 thru July 2023 to help control inflation.

The long-awaited policy shift could have significant implications for home buyers, shoppers, and investors.

Relief for borrowers

Lowering the federal funds rate helps to reduce the cost of borrowing and creates breathing room in your budget.

The prime rate, which commercial banks charge their best customers, usually moves with the federal funds rate. Small-business loans, adjustable-rate mortgages, home equity lines of credit, auto loans, credit cards, and other forms of consumer credit are often linked to the prime rate, so the rates on these types of loans should begin to go down after a Fed rate cut.

Fixed mortgage rates are influenced by a mix of complex factors that includes Fed policies as well as bond market dynamics. The rates for 30-year fixed mortgages, started falling in August after government reports confirmed that inflation was cooling down.

The average rate on a 30-year fixed-rate mortgage is now in the 6% range. This is down from 7.22% in early May. That means that home buyers are gaining purchasing power and mortgage rates might just continue to move down.

Too much cash now?

Having a lot of cash is not a bad thing. But cash might start to earn less over the upcoming months. Cash accumulators should be prepared for the yields on CD's and high yield savings accounts to follow the Fed funds rate downward.

Investors who have more cash savings than they expect to need in the next couple of years might consider locking into today's relatively high yields by buying bonds with fixed interest rates and longer terms(2+ years until it matures).

Moving more money into stocks is a riskier option but one that experienced investors sometimes choose when interest rates move down.

Impact of Rate Cuts

Interest rate cuts are intended to either boost growth when the economy is in trouble or keep the economy in a good place.

The September rate cut is presumably a starting point to help the economy sustain growth without making conditions worse. The Fed plans to keep cutting interest rates until they reach a neutral stance that should no longer impact the economy for better or worse.

It can take time for borrowing rates to respond to changes in the fed funds rate and noticeably impact the decisions of consumers and businesses. But lower rates can mean lower required payments which means more money available for you to save or make that new dream home a reality.

To learn more about how these changes can benefit you, contact MNM Vested, LLC.