The Federal Reserve gave home shoppers what they hoped for this week: a big rate cut and a signal of more cuts to come.
Even so, aspiring homebuyers and homeowners eager to refinance should temper their expectations of a big drop in mortgage rates from here.
While the Fed doesn’t set mortgage rates, its policy pivot does clear a path for mortgage rates to go lower. But in this case, the Fed’s action was widely anticipated, so rates moved lower well before the cut was even announced.
“We’ve seen the bulk of the easing that we’re going to get already this year,” said Danielle Hale, chief economist at Realtor.com. “I wouldn’t be entirely surprised if mortgage rates ticked up a bit from here before declining again.”
When mortgage rates rise, they can add hundreds of dollars a month in costs for borrowers. The average rate on a 30-year mortgage rose from below 3% in September 2021 to a 23-year high of 7.8% last October. That coincided with the Fed jacking up its benchmark interest rate to fight inflation.
Rates have been mostly declining since July in anticipation of a Fed rate cut. The average rate on a 30-year mortgage is now 6.09%, according to mortgage buyer Freddie Mac. That’s down from 7.22% in May, its peak so far this year.
Even a modest drop in mortgage rates can translate into significant savings over the long run. For a home listed at last month's median U.S. sales price of $416,700, a buyer in Los Angeles who makes a 20% down payment at the current average mortgage rate would save about $312 a month compared to the cost of buying the same home in May.
While lower rates give home shoppers more purchasing power, a mortgage around 6% is still not low enough for many Americans struggling to afford a home. That’s mostly because home prices have soared 49% over the past five years, roughly double the growth in wages. They remain near record highs, propped up by a shortage of homes in many markets.
Mortgage rates would have to drop back to near rock-bottom lows from three years ago, or home prices would have to fall sharply for many buyers to afford a home. Neither scenario is likely to happen any time soon.
Economists and mortgage industry executives expect mortgage rates to remain near their current levels, at least this year. Fannie Mae this week projected the rate on a 30-year mortgage will average 6.2% in the October-December quarter and decline to an average of 5.7% in the same quarter next year. It averaged 7.3% in the same period in 2023.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Fed’s interest rate decisions. That can move the trajectory of the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
“Ultimately, the pace of mortgage and Fed rate declines will be dictated by economic data,” said Rob Cook, vice president at Discover Home Loans. “If future data shows that the economy is slowing more than expected, it would increase pressure for the Fed to take more aggressive action with rate cuts which would likely translate into lower mortgage rates available to consumers.”
Sales of previously occupied U.S. homes have been in a deep slump dating back to 2022, and fell 2.5% last month. So far, the pullback in mortgage rates has yet to spur a meaningful rebound, although sales did rise slightly in July.
The muted outlook for mortgage rates leaves prospective buyers and sellers with a familiar dilemma: Test the housing market now or hold out for potentially lower rates.
Nick Young, an attorney who moved his family this year from Phoenix to Evergreen, Colorado, has opted to rent after seeing how competitive the homebuying market was last spring.
With a homebuying budget between $1 million and $1.5 million, he and his wife are still searching for that perfect gem — a house with five bedrooms to grow in with their three kids.
They're watching mortgage rates, but also other variables, including inflation, the health of the economy overall, and the presidential election.
“There’s not a ton of incentive to buy currently,” Young said before the Fed announcement. “But timing the market is a fool’s errand.”
Real estate agents from Phoenix to Tampa, Florida, say many home shoppers are waiting for mortgage rates to fall below 6%. Some are hoping rates can return to the lows of three years ago.
“What I try to do is bring them back to reality,” said Mike Opyd, a broker with Re/Max Premier in Chicago. “I tell them, ’if you’re serious about buying, get in now.”
To Opyd's point, the pullback in mortgage rates and a pickup in the supply of homes on the market make for a favorable backdrop for home shoppers this fall, typically a slower time of the year for home sales.
Waiting for rates to possibly ease further next year could leave buyers facing heightened competition for the home they want. Meanwhile, potential sellers may still stay put.
“Keep in mind that 76% of people with a mortgage have a rate below 5%," said Leo Pareja, CEO of eXp Realty. "So, we may see the supply-demand imbalance actually get a little worse in the near term.”
First-time homebuyers Drew Yae and his wife bought a two-bedroom, 1.5-bath townhome in Bellingham, Washington, last month.
In February, Yae, a compensation analyst, was initially quoted a 7% mortgage rate. By the time the deal was done, his rate had come down only to about 6.63%.
“I would like to refinance at 5% or 5.25%, but I just don’t know if that’s realistic and if that’s going to take more than two years to get there," he said.
Yae could lower his monthly payment by roughly $300 a month if he refinances his $407,000 home loan to 5.5%.
One rule of thumb to consider when refinancing is whether you can reduce your current rate by half to three-quarters of a percentage point.
Demand for home loan refinancing has been growing. Last week, refinance applications surged 24%, according to the Mortgage Bankers Association.
Lenders are increasingly leaning into the old “date the rate” adage by pairing original loans with refinancing incentives from the jump. After buyers saw record high interest rates that peaked about a year ago around 8%, many are marketing offers that essentially give buyers a way out of their current rate once it comes back down as a way to quell buyer hesitancy.
“It is getting a lot more emphasis,” said Mike Fratantoni, chief economist at the MBA. “Getting locked into a 7% rate forever — for a first-time buyer, it is terrifying."
Navy Federal Credit Union said it started offering their popular “no-refi rate drop” in 2023, which allows buyers to lower their rate for a $250 fee while maintaining the rest of the terms on the original loan.
Many homebuyers are opting both for the temporary rate buydowns and free refinancing, said Darik Tolnay, branch manager of CrossCounty Mortgage in Lakewood, Colorado.
“They all want a home, so if someone comes up with an idea to make it more affordable, given the general sentiment, people are desperate to have options,” Tolnay said.
FILE - A development of new homes in Eagleville, Pa., is shown on April 28, 2023. (AP Photo/Matt Rourke, File)
COLOMBO, Sri Lanka (AP) — Marxist lawmaker Anura Kumara Dissanayake on Sunday claimed he had won Sri Lanka’s presidential election.
“This victory belongs to all of us,” Dissanayake said in an X post.
Official results were yet to be announced, but according to tallies released by the Election Commission, Dissanayake secured 42% of the votes counted, followed by opposition leader Sajith Premadasa with 32%. Incumbent liberal President Ranil Wickremesinghe, who took over the country two years ago after its economy hit rock bottom, came distant a third and secured 17% of the votes.
The election held Saturday was crucial as the country seeks to recover from the worst economic crisis in its history and the resulting political upheaval. Contested by 38 candidates, it was largely a three-way race between Dissanayake, Wickremesinghe and Premadasa.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
COLOMBO, Sri Lanka (AP) — Marxist lawmaker Anura Kumara Dissanayake was leading Sri Lanka’s presidential election after knocking out the incumbent liberal President Ranil Wickremesinghe from the race, as officials on Sunday began a second round of vote counting for the first time in the nation's history.
Dissanayake, whose pro-working class and anti-political elite campaigning made him popular among youth, was leading with 39% of the votes counted, followed by opposition leader Sajith Premadasa with 34%, according to tallies released by the Election Commission.
The election held Saturday is crucial as the country seeks to recover from the worst economic crisis in its history and the resulting political upheaval. Contested by 38 candidates, it was largely a three-way race between Dissanayake, Wickremesinghe and Premadasa.
Neither candidate has received more than 50% of the vote.
The Sri Lankan election system allows voters to select three candidates on their ballots in the order of their preference. If no candidate secures a majority, the top two will be retained and the ballots of the eliminated candidates will be checked for preferences given to either of the top two candidates, and those votes will be added to their respective tallies. The candidate with the highest number of votes after that will be declared the winner.
It was a strong showing for Dissanayake, who won just over 3% of votes in a previous presidential election in 2019, and suggests voters are fatigued with the old political guard, which has been accused of pushing Sri Lanka toward economic instability.
Wickremesinghe's Foreign Minister Ali Sabry congratulated Dissanayake on the social platform X and said he hopes he will “lead with a commitment to transparency, integrity, and the long-term good of the country.”
“I wish Mr. Dissanayake and his team every success in their efforts to lead Sri Lanka forward,” Sabry added.
Premadasa has not conceded defeat.
The election was a virtual referendum on Wickremesinghe’s leadership of a fragile recovery, including restructuring Sri Lanka’s debt under an International Monetary Fund bailout program after it defaulted in 2022.
Dissanayake, 55, leads the left-leaning coalition National People’s Power, an umbrella of civil society groups, professionals, Buddhist clergy and students.
No major incidents were reported during the vote but authorities declared a countrywide curfew until midday Sunday as a precaution, police said.
There were 17 million eligible voters and final results are expected Sunday evening.
The government announced Thursday that it passed the final hurdle in debt restructuring by reaching an agreement in principle with private bond holders.
At the time of its default, Sri Lanka’s local and foreign debt totaled $83 billion. The government says it has now restructured more than $17 billion.
Despite a significant improvement in key economic figures, Sri Lankans are struggling with high taxes and living costs.
Both Premadasa and Dissanayake say they will renegotiate the IMF deal to make austerity measures more bearable. Wickremesinghe has warned that any move to alter the basics of the agreement could delay the release of a fourth tranche of nearly $3 billion that is crucial to maintaining stability.
Sri Lanka’s economic crisis resulted largely from excessive borrowing on projects that did not generate revenue. The impact of the COVID-19 pandemic and the government’s insistence on using scarce foreign reserves to prop up the currency, the rupee, contributed to the economy’s free fall.
The economic collapse brought a severe shortage of essentials such as medicine, food, cooking gas and fuel, with people spending days waiting in line to obtain them. It led to rioting in which protesters took over key buildings including the president’s house, his office and the prime minister’s office, forcing then-President Gotabaya Rajapaksa to flee the country and resign.
Wickremesinghe was elected by a parliamentary vote in July 2022 to cover the remainder of Rajapaksa’s five-year term.
Police commandos stand guard, as a countrywide curfew was imposed then, outside a ballot counting center during the presidential election in Colombo, Sri Lanka, Sunday, Sept. 22, 2024. (AP Photo/Rajesh Kumar Singh)
Police commandos stand guard outside a ballot counting center during presidential election in Colombo, Sri Lanka, Sunday, Sept. 22, 2024(AP Photo/Rajesh Kumar Singh)
Latest update of the presidential election is displayed on a screen at a counting center, in Colombo, Sri Lanka, Sunday, Sept. 22, 2024.(AP Photo/Rajesh Kumar Singh)
Latest update of the presidential election is displayed on a screen at a counting center, in Colombo, Sri Lanka, Sunday, Sept. 22, 2024.(AP Photo/Rajesh Kumar Singh)
People watch early election result showing Marxist-leaning lawmaker Anura Kumara Dissanayake in a leading position on a television screen, in Colombo, Sri Lanka, Sunday, Sept. 22, 2024. (AP Photo/Eranga Jayawardane)
Police commandos stand guard outside a ballot counting center in Colombo, Sri Lanka, Sunday, Sept. 22, 2024. (AP Photo/Eranga Jayawardane)
Police commandos stand guard outside a ballot counting center in Colombo, Sri Lanka, Sunday, Sept. 22, 2024. (AP Photo/Eranga Jayawardane)
Police commandos stand guard outside a ballot counting center in Colombo, Sri Lanka, Sunday Sept. 22, 2024. (AP Photo/Eranga Jayawardane)
Polling officials carry a sealed ballot box as they return it to a counting center at the end of voting during presidential election in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Rajesh Kumar Singh)
Polling officials carry a sealed ballot box as they return it to a counting center at the end of voting during presidential election in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Rajesh Kumar Singh)
A police officer sits next to a sealed ballot box as polling officials prepare to return it to a counting center at the end of voting during presidential election in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Rajesh Kumar Singh)
People wait in a queue to cast their votes at a polling center during the presidential election on the outskirts of Colombo , Sri Lanka Saturday, Sept. 21, 2024.(AP Photo/Rajesh Kumar Singh)
A Sri Lankan family sit in a rickshaw as they leave a polling station after casting their votes in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Eranga Jayawardena)
Elderly women leave a polling station after casting their votes during the presidential election in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Eranga Jayawardena)
Voters gather at a polling station to cast their votes during the presidential election in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Eranga Jayawardena)
Election officers seal the documents and ballot box at the end of voting during presidential election in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Rajesh Kumar Singh)
A Sri Lankan man casts his vote at a polling station during presidential elections in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Rajesh Kumar Singh)
Leader and the presidential candidate of National People's Power Anura Kumara Dissanayake arrives at a polling station to cast his vote in Colombo, Sri Lanka, Saturday, Sept. 21, 2024. (AP Photo/Eranga Jayawardena)
