In one of the more highly anticipated Federal Reserve meetings in recent memory, rates were reduced by 50 basis points to 4.75%–5.00%, exceeding the expectations of market observers who were betting on a more modest 25-point decrease. Naturally, some of the drop had already been built into mortgage rates for buyers who had been pre-qualified. As of September 27, the average 30-year mortgage sits at 6.08%—although buyers who have a relationship with a bank (such as having other funds on deposit) may have opportunities to slice a bit off from there.
With interest rates coming down, it provides some optimism that people can afford to finance a new property and move after being home-locked for years. As of the most recent figures, inventory levels have exceeded 17,000 units on the market. While that represents an uptick from the past few years, a typical Phoenix residential market in equilibrium is around 22,000–23,000.
Given that the ink has barely dried on the Fed announcement, it is unclear exactly how it will affect the market in pricing and inventory dynamics—and how buyers will react. While most families are probably settled in for the school year, some may dip into the marketplace with more appealing rates. This also presents an opportunity for agile sellers who might have been on the fence to get their properties on the market before more product hits the market and the holiday lull.
If enough would-be sellers make a move, that means that we could have a lot of inventory—and competition. Although a flood of product is a concern, it bears noting that the current environment is quite different from the 2007-08 rate decrease period. Back then, there was a significant amount of money washing around on the market and loose underwriting standards (such as stated loans, with no income verification). In today’s scenario, banks are being cautious.
August to September 2024, the supply-demand index dropped from 100.7 to 99.7, with supply up 2.7 points and demand essentially flat. Beyond the Fed’s moves, the bond market uninverted this month, with the 2-year bond yield falling below the 10-year Treasury for the first time in nearly 2.5 years. This is a correction that has long been expected and is often the precursor to a recession. Ironically, periods of recession have proven to be good for homebuyers, since mortgage rates typically decline and home appreciation stagnates. Subtle evidence shows demand is already improving.
Originally shared via roiproperties.com newsletter. Click here to read full newsletter.
