Mortgage Rates Fall as Fed October Meeting Takes Center Stage
Author:
Eric Bernstein
Published:
The housing headlines last week were pretty ugly. Pending home sales hit their lowest level on record, while homebuilder confidence dropped to a 14-year low. But for homebuyers, these numbers shouldn't be a reason to stay on the sidelines. In fact, they could signal one of the better buying opportunities we've seen in years. With demand slowing and sellers increasingly willing to negotiate, buyers have an opportunity to secure meaningful purchase price reductions, seller concessions and mortgage rate buydowns. And if mortgage rates continue to improve from here, today's buyers could find themselves in a great position, having negotiated favorable terms before lower rates bring more competition back into the market. Of course, every housing market is different, but the takeaway is simple: don't let scary national headlines keep you from exploring what could be a great buying opportunity.
The average rate on a 30-year fixed rate conventional loan continued to fall and it's now at 7.22%.
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All Eyes on the Fed This Week
The Federal Reserve meets Tuesday and Wednesday, and markets are pricing in a roughly 90% chance that rates stay unchanged. After September's rate hike and the recent surge in Treasury yields, the Fed appears ready to hit pause, at least for now. But with inflation still stubbornly high, another rate hike before year-end is very much on the table.
The bigger story will be what Fed Chairman Kevin Warsh says during Wednesday's press conference, or just as importantly, what he doesn't say. If Warsh signals that the Fed is comfortable holding rates steady for a while, mortgage rates could continue improving. But if he emphasizes persistent inflation and keeps the door wide open for additional hikes, we could see mortgage rates reverse some of their recent gains. As we've seen repeatedly, mortgage rates react more to expectations about future Fed policy than to the actual decision. Wednesday could be a big day for rates even if the Fed does absolutely nothing.
Pending Home Sales Hit a Record Low
Pending home sales took a beating in September. The National Association of Realtors' Pending Home Sales Index fell 7.3% from August and 11.3% from a year ago, dropping to 66.0, the lowest reading since the index began in 2001.
The culprit isn't particularly complicated, Mortgage rates surged during September and buyers pulled back. Pending sales measure contracts being signed today, so they tend to give us a preview of where closed sales are headed over the next month or two. When mortgage rates jump quickly, this is usually one of the first housing reports where you see the damage.
But this is also a good reminder of why I hate talking about "the housing market" as if there is only one. These are national and regional averages, and the market can look completely different from one city, neighborhood or even price point to the next. Millburn, New Jersey and parts of the Bay Area are still highly competitive markets where desirable homes can attract multiple offers. Even Austin looks considerably healthier beneath the national headline: local MLS data showed September pending sales down just 1.8% from last year, while the median sales price actually increased 1.4%.
For buyers, my advice is to negotiate aggressively, especially in markets where homes are sitting longer and sellers are struggling to find buyers. That could mean a meaningful reduction in the purchase price, substantial seller concessions toward closing costs or a combination of both. In many cases, negotiating seller concessions to buy down your mortgage rate can provide more immediate monthly payment relief than an equivalent reduction in purchase price. Of course, the right strategy depends on the neighborhood, the property and how motivated the seller is. But with national demand this weak, buyers shouldn't be afraid to make strong offers that work in their favor. The worst a seller can do is say no, and right now, many sellers are a lot more willing to negotiate than they were a few years ago.
Homebuilder Confidence Falls to a 14-Year Low
Homebuilder confidence fell to its lowest level since June 2012, with the NAHB/Wells Fargo Housing Market Index dropping to 29 in October from 32 in September. Anything below 50 means more builders view market conditions as poor than good. Prospective buyer traffic also fell to 18, reflecting the impact of higher mortgage rates and affordability challenges. Builders are understandably cautious heading into 2027, especially with mortgage rates remaining above 7%.
But there's a silver lining for homebuyers. 43% of builders cut prices in October, the highest percentage since 2020, with an average reduction of 6%. Another 65% offered sales incentives, including closing cost credits and mortgage rate buydowns. Builders are clearly working harder to attract buyers, and that competition is creating opportunities we haven't seen in years. With more builders willing to reduce prices and offer generous incentives, new construction is becoming an increasingly attractive alternative to existing homes.
What to expect this week?
This is a BIG week for mortgage rates, with the Federal Reserve meeting on Tuesday and Wednesday, followed by the Fed's preferred inflation report on Thursday. Markets are pricing in a roughly 90% chance that the Fed holds rates steady, but Chairman Warsh's comments on Wednesday could have a much bigger impact on mortgage rates than the decision itself. Thursday's PCE inflation data will be just as important, especially after September's hotter-than-expected CPI and PPI reports.
Monday, 10/26: No major economic reports scheduled.
Tuesday, 10/27: Durable goods orders, S&P Case-Shiller Home Price Index, new home sales, consumer confidence and the first day of the Federal Reserve meeting. Housing data will give us another look at how higher rates are affecting buyers.
Wednesday, 10/28: Trade balance, wholesale and retail inventories, and the Federal Reserve's interest rate decision at 2 PM ET, followed by Chairman Warsh's press conference at 2:30 PM ET. This is the biggest event of the week for mortgage rates.
Thursday, 10/29: GDP, weekly jobless claims, personal income, consumer spending and PCE inflation. PCE will be especially important as markets look for signs that inflation is finally cooling.
Friday, 10/30: Employment Cost Index and Chicago Business Barometer. The Employment Cost Index will provide another look at wage pressures and their potential impact on inflation.
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