On Wednesday, Federal Reserve Chair Jerome Powell delivered big news for the housing market—starting this month, the Fed is cutting interest rates by 0.50 percentage points. With additional cuts likely in November and December, buyers and sellers alike are wondering: What does this mean for the future of home sales and mortgage rates?
“Fed Chair Jerome Powell discusses rate cuts and future monetary policy changes.“
The Immediate Impact: Mortgage Rates Expected to Drop
Moody’s chief economist, Mark Zandi, anticipates a significant change for buyers by the end of 2024. With the Fed easing its policy, Zandi projects that the 30-year fixed mortgage rate will close in on 6.0% by year-end, eventually settling near 5.5% by 2025. This is encouraging news for potential homebuyers, as lower rates typically mean better affordability and lower monthly payments.
According to Zandi, the decline in rates is due to several factors, including a narrowing spread with the 10-year Treasury yield and a reduction in bond market volatility. This means as the yield curve normalizes, the risk of pre-payments will also level out, making mortgages a more attractive option for consumers.
Fannie Mae’s Housing Market Forecast: Sales to Hit Historic Lows
While the Fed’s rate cuts may provide some relief, Fannie Mae’s chief economist Doug Duncan painted a more sobering picture for home sales. Duncan predicts that full-year 2024 will see the fewest existing home sales since 1995. Despite recent drops in mortgage rates, there’s been little evidence of a spike in loan applications or improved homebuying sentiment.
On June 6th, I wrote a post calling the current market a housing recession, not a bubble. I stand corrected! The latest data shows that home sales are struggling at levels not seen since the mid-90s, confirming that we’re in a prolonged slowdown. With only 3.86 million existing homes sold in August 2024 at a seasonally adjusted annualized rate (SAAR), this trend is likely to continue over the next 12 months.
Fannie Mae revised its mortgage rate forecasts as follows:
- Q4 2024: 6.2% (down from 6.4%)
- Q1 2025: 6.0% (previously 6.2%)
- Q2 2025: 5.9% (previously 6.1%)
- Q3 2025: 5.8% (previously 6.0%)
- Q4 2025: 5.7% (previously 5.9%)
This expected drop in rates might not be enough to revive the housing market. In August 2024, only 3.86 million existing homes were sold at a seasonally adjusted annualized rate (SAAR). If sales continue at this pace, the housing market is set to struggle over the next 12 months.
“NAR Chief Economist Lawrence Yun comments on the potential impact of rate cuts on home sales.”
What This Means for Buyers and Sellers
For buyers, the declining rates in the months ahead could create more affordable opportunities, but home affordability will remain tight until consumer sentiment improves, and mortgage applications pick up. Sellers may face continued challenges, with fewer transactions and more cautious buyers.
Disclaimer: While the information provided here reflects current projections, the real estate market is subject to change. Consult with a mortgage advisor or real estate professional for the most up-to-date guidance.
Source: Much of the data and insights in this article were gathered from Lance Lambert at ResiClub Analytics. For more detailed analysis, visit ResiClub Analytics.
AriZona Real Estate insider! 
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