Federal Reserve Chairman Jerome Powell has signaled that the central bank will cut rates in September, which is expected to impact mortgage rates. However, it is not yet clear how far rates will fall and how long the decline will last.
The U.S. housing market is facing a difficult period due to high mortgage rates, which have risen sharply compared to just three years ago. The average rate on a 30-year mortgage is currently around 7%, significantly higher than the sub-3% rates available in 2020 and 2021. These rates have kept many potential buyers at bay, prolonging the housing market’s decline for the third consecutive year.
However, there is some optimism that mortgage rates could come down soon, due to several economic factors and the upcoming key dates of September 2024.
Current rates
According to data available through Sept. 3, the average interest rate for a 30-year mortgage in the U.S. is 6.368%. Other mortgage rates, such as those on jumbo loans, FHA loans, VA loans, and USDA loans, also vary slightly but generally remain above 6%. These rates represent a significant increase from just a few years ago, when they were at historic lows, creating a much tougher environment for homebuyers, especially by contrast.
Mortgage rates are shaped by a variety of factors, including Federal Reserve decisions, inflation levels, and the overall economic situation. The Federal Reserve has raised interest rates to combat inflation, which has led to higher borrowing costs across the economy, including mortgages. However, there are signs that the Fed could reverse course this month, which would in turn lower mortgage rates.
Key dates in September
Certain dates in September will help determine whether mortgage rates will decline. They are tied to the release of important economic data and Federal Reserve meetings, which directly influence interest rates.
On September 6, the Bureau of Labor Statistics will release its unemployment report for the month of August. Recent trends show an increase in unemployment, and if the report confirms this, it would be a sign that the economy is slowing down. When the unemployment rate rises, it usually puts pressure on the Federal Reserve to reduce interest rates and stimulate economic activity. If the unemployment report causes further concern, it could lead to speculation about a further rate cut, which in turn would lead to a decrease in mortgage rates.
September 11 is another important date, as that is when the latest inflation data will be released. Inflation has been trending downward for several months, and if the August data show that this continues, it will increase the likelihood that the Federal Reserve will cut rates.
September 18 is the most important date, as this is when the Federal Reserve will conclude its meeting and could announce its first rate cut since March 2020. Although it is not known how large the rate adjustment will be, the market is anticipating a reduction of 0.25 to 0.5.
What happens if rates are reduced?
A reduction in mortgage rates would make homeownership more affordable, which could increase homebuying activity and stabilize or even boost prices. In addition, homeowners with higher mortgage rates could take the opportunity to refinance by lowering their monthly payments and freeing up income for other expenses, which could positively influence consumer spending and the overall economy.
However, while lower rates could help revive the housing market and boost economic confidence, there are potential risks. A rapid rate cut could lead to “overheating” of the housing market, with prices rising rapidly. Moreover, if the Federal Reserve cuts rates because of a severe economic downturn, it could signal deeper economic problems that may not be easily solved by lower interest rates alone.
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