Rate Cuts, Inflation, Elections…Oh My! How Housing Will Be Affected By Upcoming Market Changes

By Bill Stern, Branch Manager for CMG Home Loans

A combination of political uncertainty, economic policy shifts, and broader market forces makes this a complex time for the housing market.

The housing market is at a crossroads, and a combination of economic policies and political developments will determine its path in the months ahead. One of the most significant recent developments was the Federal Reserve’s decision to cut interest rates for the first time in over four years. Consumers breathed a collective sigh of relief at the news, as the move is expected to lower borrowing costs and could help thaw a housing market that has been largely frozen by the low rates homeowners locked in during the pandemic.

However, even with this potential relief, there are lingering challenges that both the Fed and policymakers can’t fully address—namely, high home prices and limited housing inventory.

The Fed is Starting to Cut Rates

After raising the cost of borrowing for 2.5 years, the Federal Reserve finally announced a rate cut that would ease costs for consumers. Though some experts expected this to be a quarter-point cut, it ended up being a half-point reduction – a welcome surprise for consumers. This marks the first rate cut since 2020 and brings the benchmark interest rate to 5%.

The Fed’s rate cuts are expected to continue into the last quarter of 2024 and 2025, providing further relief for consumers and businesses. The central bank is projecting a federal funds rate of 4.4% by 2024, which would represent a roughly 1% reduction from current levels. This gradual reduction in borrowing costs could help more prospective buyers enter the market, especially those who have been priced out due to high mortgage rates. As Powell mentioned, “As rates come down, people will start to move more, and that’s probably beginning to happen already.” However, any significant recovery in the housing market will likely depend on more than just rate cuts – it will require meaningful increases in housing supply and more affordable home prices.

Housing Costs Remain High

While the Fed’s recent rate cut is a step toward easing borrowing costs, it hasn’t fully offset the broader challenges in the market. Despite mortgage rates falling to their lowest level in over a year, home prices remain near record highs. The median U.S. home price is currently $388,085, marking a 3.7% increase year-over-year and just shy of the all-time high set in July. One of the primary reasons for these elevated prices is the limited supply of homes. The total number of homes for sale is down nearly 30% from pre-pandemic levels, creating a supply-and-demand imbalance that is keeping prices high even as interest rates begin to decline.

Home Buyers and the 2024 Presidential Election

Both presidential candidates have proposed solutions to address the issue of housing affordability, which has become a growing concern as home prices continue to rise faster than wages. A May analysis by Zillow revealed that rent prices have increased 1.5 times faster than wages in most major U.S. metropolitan areas over the past four years, putting additional pressure on buyers who are already struggling with affordability. However, it remains to be seen whether the candidates’ proposals will effectively address the underlying problems in the market, such as supply shortages and rising construction costs.

According to a recent Redfin report, many home buyers are hesitant to make any major moves until after the upcoming presidential election. Historically, this kind of wait-and-see approach is common during election years, as buyers and sellers want more clarity on future policies that could affect their finances. The housing market tends to slow during these periods of uncertainty, with many potential buyers sitting on the sidelines until the election results are in.

The combination of political uncertainty, economic policy shifts, and broader market forces makes this a complex time for the housing market. However, by staying informed and understanding the key factors at play, buyers, sellers, and investors can better prepare for what’s to come in the months and years ahead. Reach out to me and my colleagues at CMG Home Loans if you have questions about the market or mortgage rates!

Bill Stern

Branch Manager, NMLS ID# 267577

CMG Home Loans, NMLS ID# 1820

540-222-0164 | Email Me

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