With the Fed due to cut rates, should you sell your home?

VaselineSeptember 17, 2024

0 7 minutes read

With the Fed due to cut rates, should you sell your home?

The Federal Reserve is expected to announce on Wednesday that it will cut the federal funds rate, a key overnight bank lending rate that affects other interest rates, for the first time in four years. The housing market has been stuck for some time, with sellers reluctant to give up for a number of reasons, including high mortgage rates. With interest rates starting to drop, is now a good time to sell your home?

The question of whether or not to sell is a concern of many owners. One of the reasons some may have been reluctant is that selling now would mean giving up a lower-rate mortgage you previously obtained and taking out a higher-rate mortgage to buy a new home. However, a new survey by Fannie Mae suggests that mortgage rates may not be as big of a problem as first thought. Low inventory, inflation and high home prices are also reasons why homeowners are hesitant to sell right now.

The number of homes sold in the US fell in 2023 after a sharp increase in 2021. Transactions in 2021 totaled 6.12 million. In 2023, that number dropped to 4 million, according to the January 2024 Economic Outlook from the National Association of Realtors (NAR). However, NAR expects sales to reach 5.6 million in 2025, indicating a recovering market.

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At its meeting on September 17-18, the Federal Reserve, the nation’s central bank, is expected to cut interest rates for the first time since 2020. Fed rate changes have a big impact on short-term interest rates. Mortgage rates, on the other hand, are closely tied to long-term bond yields, so even a small rate cut can open up opportunities for sellers, but also create challenges.

There are lots of reasons why you might be selling your home, whether you’ve landed a new job across the country or want to move closer to family, or maybe you’re nearing retirement age and want to you reduce If you’re on the fence about selling, weigh your options and understand the market before changing your address.

Current housing market conditions

In October 2023, mortgage rates reached 8%, a number not seen in more than 20 years. In mid-August, rates fell from that threshold to just over 6.5% for a 30-year fixed-rate mortgage. Right now, mortgage rates are holding steady in the 6% range. Such high interest rates may make selling less than ideal, for now.

On the other hand, low inventory and a competitive market can mean higher returns for homeowners who are willing to sell now. “While inventory has risen over the past year, it still remains below normal levels, favoring sellers,” says Mike Pappas, CEO of Keyes Company. “Interest rates have fallen 1% from their peak of 7.4% and are now at their lowest level. 6% as the market responds to lower inflation rates.”

However, since mortgage rates are generally based on Treasury yields, a 30-year mortgage should be around 5.65%. However, due to inflation uncertainty, there is a 0.5% hedge in the market. Pappas adds, “Not to mention that for every 1 percent drop in interest rates, five million more potential homebuyers qualify for a lower rate.”

Rising home prices keep sellers on the bank

The price of a house increased by an average of 50% compared to 2019, according to S&P Global. As a result, the median sales price for an existing home reached $426,900 in June 2024, according to the National Association of Realtors (NAR). That may be why 81 percent of consumers think it’s a bad time to buy (or sell) a home, according to the Fannie Mae Home Purchase Sentiment Index, released in July 2024.

But even if inflation slows, the decision to sell a home is not an easy one, especially in an unpredictable market. “Lower interest rates make mortgages less expensive, which can create more buyers for available housing,” says Patricia Watson, professor, East Boston School of Business at the American Public University System. “With increasing demand and limited supply, housing prices are likely to rise further.

“If buyers have stayed in their homes for the duration of their mortgage, selling now could be a good decision; however, most buyers stay an average of seven years,” adds Watson. This means that while low rates can reduce the price of a mortgage. , rising house prices could wipe out any savings, making homes more expensive than when rates were higher.

How mortgage rates affect sellers

In March 2022, the Federal Open Market Committee (FOMC) began raising the federal funds rate in response to rising inflation. The committee raised the rates 11 times before finally stopping. These rates have not changed since July 2023 and remain stubbornly around 5.50%.

Then again, mortgage rates have already fallen ahead of the September 2024 Fed meeting. The average interest rate on a 30-year fixed-rate loan in mid-August was just over 6.5%, but on September 12, the rate was 6.20%, making this a better time to sell even a month early based on the mortgage. rates alone.

Homeowners with home equity lines of credit (HELOCs) or adjustable rate mortgages (ARMs) should see immediate savings as interest rates drop. And anyone who bought their home when rates were higher can finally enjoy a significant benefit from refinancing. Likewise, homeowners who feel shackled by their current mortgage may be more willing to sell now.

Should you sell your house now?

While selling is a personal decision, these three reasons may tip the balance in favor of selling now.

1. Interest reductions

Falling interest rates almost always create a favorable market for sellers, stimulating buyer demand and potentially speeding up the selling process. And as more potential buyers enter the market, sellers may find themselves in a stronger negotiating position, potentially closing deals faster while also securing better terms.

Pappas adds that homeowners who have been stuck in their homes because of low mortgage rates may finally decide to sell. “This is especially true if they can downsize and secure a relatively low mortgage if rates drop significantly. This could help increase supply for first and second-time home buyers, which could add stability prices.”

2. Changes in real estate fees

The cost of selling a home may drop as a result of new changes to real estate commissions implemented by the National Association of Realtors following a 2023 ruling on how real estate agents were compensated. In addition, competition, whether between agents or between listed properties, can result in stronger negotiations, higher home prices and faster sales.

3. Favorable market conditions

Increased buyer competition and the potential for stronger negotiations make now an ideal time to capitalize on market momentum. By taking a proactive stance, you can potentially benefit from higher sale prices while avoiding future market downturns that could affect your property’s value. “With inventory still tight, more buyers competing for fewer homes could drive up prices and reignite bidding wars,” said Faron Daugs, Certified Financial Planner, Founder and CEO at Harrison Wallace Financial Group.

“When the Fed starts cutting rates, we could see an increase in home prices. The impact will largely depend on current inventory levels,” adds Daugs. “For cash buyers, now could be a good time to consider selling. However, if you need a mortgage, it’s possible to go from a very low rate to a higher rate, although it will probably be lower than the rates of a year ago.”

Should you wait and sell your home until later?

While there are several good reasons to sell now, potential sellers may want to hold off on listing homes for other reasons, including:

1. Stubborn inflation

While the Feds interest rate cut may help stimulate buyer demand and the opportunity to potentially benefit from higher sales prices, inflation still looms large in many other areas of everyday life. Add in other costs for sellers, including closing costs and taxes, and the fact that they may have trouble finding a home to move into in their price range, and you have something of a double whammy for sellers.

2. You just refinanced your mortgage

Even with a Fed tapering, refinancing is not a good move if you plan to sell in the next few years. That’s because it will take you too long to pay off the costs that come with refinancing. Closing costs typically range from 2% to 5% of the mortgage loan amount and are paid in addition to the down payment. So, on a home purchased for $300,000, the closing cost can range from $6,000 to $15,000.

3. You need to make major repairs

If you have a long list of repairs to your home, you may want to hold off on selling until those repairs can be made or until your budget allows. For example, the average cost to replace 10-15 windows in your home can be between $4,500 and $22,500, according to Homeguide. The cost of a major roof repair can be anywhere from $3,000 to $6,000.

Conclusion

Frank Lietke, chief executive and chairman of Ally Invest Securities at Ally Bank offers this advice: “Even if inflation is changing, consumer purchasing power is about 20% lower than it was four years ago and is stuck at a record low in the United States. Look at your expenses and cut any unnecessary costs, bargain and shop for better values, pursue a side hustle or invest your money. When the rate changes, there is an underlying impact on your cash, savings, credit card balances and more, so focus on those.”

Still not sure if now is the best time to sell? Check The best time to sell a home in 2024 is now for insight.

VaselineSeptember 17, 2024

0 7 minutes read

Vaseline

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