With interest rates falling, here’s what it could mean for the housing market.
Transcript:
CAROLINE WOODS: So mark, the Fed cut interest rates. We’ve been waiting for this. The big question now is what does this mean for the housing market. Is now the time to buy a house.
MARK ZANDI: Well, it’s still pretty unaffordable despite the lower mortgage rates. You know, we’ve got very high house prices that rose quite a bit during the pandemic period and incomes have not kept up. So affordability is still a problem. And there’s still not a lot of housing inventory in many parts of the country, although that’s changing. So is it the time to buy a home. Well, better than it was, but still not great. You know, hopefully mortgage rates continue to come in. But there’s, as you know, there’s only a loose link between what the Federal Reserve is doing with short term interest rates and what that means for mortgage rates. It matters for mortgage rates. But, you know, there’s so many other things that drive those rates. So, you know, I don’t think we can count on the Fed by itself to get those weights down.
CAROLINE WOODS: So let’s talk about that a little bit more and dig into the other factors driving things like mortgage rates, because I know there are a lot of questions about refinancing as well. So for homeowners thinking about refinancing, knowing the Fed could cut again later this year, do you lock in now or do you wait and risk missing this window and talk to us about some of those other factors that could also play a part.
MARK ZANDI: Well, you know, just to make it concrete, I mean, the fixed mortgage rate 30 year fixed is sitting last. I looked at 6.25% And that embeds the expectation among investors that the Fed will continue to cut interest rates. So they cut last week. They’re going to cut in October. They cut in December a couple times. Three times. Next year. The federal funds rate target is going to go from 4% now to 3% you know, by this time next year that’s already embedded in mortgage rates. So if you look at the 6.25% and that makes sense to refi at that rate for most folks, that probably doesn’t make a whole lot of sense. The average coupon on an existing mortgage, the average rate on an existing mortgage is probably closer to four. Refi doesn’t make a whole lot of sense. Rates have to come down even more than what they have. So, you know, for most people it doesn’t still doesn’t make a whole lot of sense to refinance. You need to see rates that get into the fives before that becomes a real possibility for more, more people.
CAROLINE WOODS: When do you think that will be.
MARK ZANDI: I think it’s going to be a long way. You might get a window. I mean, obviously mortgage rates, interest rates broadly go up, they go down, they go all around. They’re highly volatile. So you might get a window that opens when rates are down. Maybe the economy, really stumbles and say, say for this next employment report, it comes in negative. And there’s a lot of recession concerns. You could see long term rates come in, mortgage rates fall and you get that window.
So I’d suggest being prepared for the possibility you know, go through the window if you have the opportunity, but it’s one of those things that I wouldn’t count on it. It seems less likely than not that you’re going to get a window to open up anytime in the near future at least.
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