By now, everyone has heard the big news! The Fed went big with the first cut and cut the Fed Funds rate by 50bps, bringing the Fed Funds Rate to 4.75-5%.

The average rate on a 30-year fixed rate conventional loan actually stayed FLAT at 6.06% following the cut (more on that below).  Sign up for our weekly Friday rate texts to see how much lower our rates are compared to the average (BTW: they are WAY lower than the average).

The Cut Heard Round the World 

Thanks to solid inflation reporting and a somewhat grim outlook on the labor markets over the last few weeks, the Federal Reserve took an aggressive approach with their first rate cut in over 4 years. “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the Federal Reserve statement said. The decision was not unanimous though with Federal Governor Michelle Bowman hoping for a 25bp cut, and it was the first decision that wasn't unanimous since 2005.

Mortgage rates are based less on today's Fed funds rate and more on the expectation of FUTURE rate cuts that will continue to lower the Fed funds rate. Meaning that while a 50bp cut is certainly nice, the press conference with Powell and the dot plot of the anticipated Fed funds rate (pictured below) were more important for mortgage rates.

So let's dive into that - there are 2 BIG takeaways.

1.  Powell was hoping a big cut would put bolster confidence that the Fed would do whatever it takes to avoid a recession or even further weakening of the labor market, but when talking about future cuts, Powell said "We are not on any preset course.  We will continue to make our decisions meeting by meeting...  In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. " 

2.  The dot plot, which takes the opinion of every Federal Reserve Committee Member into account, shows the average member expects the Fed funds rate to be at 4.4% by year end - which means 2 more 25bp cuts (1 in November and 1 in December).  This dot plot can change meeting by meeting - for instance, in the June meeting - the 2024 year end Fed funds rate was expected to be 5.1%

Neither of these were great for mortgage rates. Mortgage rates right before the Fed meeting were pricing in a slightly elevated chance of recession and up to 6 cuts by January 2025! Powell's statements and the dot plot caused a slight recalibration of  expectations, which is why mortgage rates went slightly up following the meeting. 

All in all, it was a very positive moment for homebuyers because the Fed has FINALLY started cutting rates. If the Fed were more optimistic about the labor market than expected or even withheld the rate cut that everyone craved - we could have seen mortgage rates spike. I believe that mortgage rates will stabilize here for a while unless we see more bad data that will cause the Fed to have to get more aggressive.

Buyers Have Their Pick of The Litter 

Especially in my hometown of Austin where available home inventory is 10 year highs (which is 4.9 months of supply)! Unsold inventory nationwide sits at a 4.2-month supply at the current sales pace, up from 3.3 months last year.  There's still dramatically less inventory nationwide than we saw pre-pandemic, but the gradual growth that we have seen in inventory is great news for homebuyers.  

Existing home sales continue to fall month over month, down 2.5% since July. Home prices, on the other hand,  continue to go up, increasing 3.1% from last August to $416,700, the 14th consecutive month of annual price increases - but remember, that's a nationwide increase, not a local increase and real estate prices are LOCAL. Make sure you are looking at your local trends since home prices have actually fallen in areas with high inventory (like Austin).

Not only does this allow homebuyers to not have to settle for the only house in the market in their dream neighborhood, but it's giving buyers tons of negotiating power. Don't be afraid to offer under asking price and ask for seller concessions for rate buydowns or closing cost credits. 

Don't forget about that buying today will automatically enroll you in our Rate Rebound program so you can save on future refinances!