The Federal Reserve announced on November 7th that it would cut its policy interest rate by 0.25%. 0.5% (50 basis points) interest rate cut in September. Investors may be expecting that inflation is under control-Further rate cuts could signal the beginning of a more affordable housing market. However, it’s not that simple.
The reduction will reduce the federal funds rate (the interest rate banks charge each other for borrowing funds) from 4.75% to 5% to 4.5% to 4.75%. However, recent interest rate cuts don’t change things much for mortgage seekers and other borrowers.
“If we get a few more interest rate cuts in the coming months, the impact will be a big game-changer for the average debt-ridden person,” said Matt Schultz, chief credit analyst at LendingTree. said. told CBS News “But for now, the effects of these reductions are likely to be less pronounced.”
Don’t rely on low rates
Many prospective homebuyers who took a wait-and-see approach after September’s rate cut, hoping for further rate cuts and rate reductions, were surprised by last month’s rise in mortgage rates — the average rate for a 30-year fixed-rate loan was approx. It was 6.79%. According to freddie mac. The rate has risen from September’s low of 6.08%, due in part to other economic trends such as the unemployment rate and the presidential election. To be sure, homebuyers are unlikely to experience significant interest rate declines in the short term.
“As long as investors remain concerned about what the future holds, U.S. Treasury yields, and by extension mortgage rates, will fall and remain there,” Jacob Channell, senior economist at LendingTree, told CBS News. It will be difficult to do so.”
Election results change everything
One of the purposes of raising interest rates was to reduce inflation and consumer prices. However, under the influence of President Trump, regulations for real estate investors and construction companies may be loosened and tax incentives may increase.
“There are likely two sides to the coin,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association, an industry group. market watch. “overnight [since the election result]With the 10-year Treasury rate rising by about 20 basis points, one could reasonably expect the impact to be fairly similar to a similar increase in mortgage rates. ”
Fratantoni expects a Trump economy to see higher economic growth, higher inflation, and therefore higher interest rates.
Homeownership can be tough for new buyers
“We should expect further volatility in the housing market,” Lisa Sturtevant, chief economist at BrightMLS, said in a statement about the incoming administration. In the long run, he said, “his policies favor high-income earners and existing homeowners, making homeownership more difficult for first-time homebuyers and people with moderate incomes.” I predict that.
Sturtevant warned investors hoping for a return to low interest rates in 2025, saying, “Investors expect President Trump’s fiscal policy plans to widen the federal deficit and reverse the rise in inflation, so bonds are “Yields are rising,” he warned.
Lawrence Yun, chief economist at the National Association of Realtors, told MarketWatch: “Mortgage rates will rise in the short term as the deficit outlook does not improve even as the Fed lowers short-term rates. I guess so.” Based on the election results, Yun predicted that the Fed would not cut rates further unless President Trump’s economic and housing policies reduce inflationary pressures. In other words, don’t expect interest rates to approach pandemic-era lows.
“I can’t say never, but it’s unfortunate that we’re in a situation where we’re going to have mortgage rates that low again,” Fratantoni said. “We had to get through the pandemic to get there, so it would take a major economic collapse or another negative factor to take advantage of the very low mortgage rates.”
Loans may become easier to obtain if regulations are relaxed.
Despite the uncertainty about interest rates, most experts agree that the incoming Trump administration will be less regulated than the Biden administration. This impact will also extend to the lending industry, which could ease the market by increasing approvals, construction, and home sales. But those looking to make changes soon shouldn’t hold their breath.
Darryl Fairweather, chief economist at Redfin, told MarketWatch:
“Housing will continue to be in short supply. As the economy grows, so will rents and home prices. Borrowing costs are unlikely to fall significantly. With Republicans in control, national housing affordability Prices are not the biggest concern, so we expect that to remain the case.”
final thoughts
The Fed is trying to distance itself from politics, but Trump’s election victory casts a shadow on everything they might do.
“The main takeaway is that his election adds more uncertainty to the outlook for both growth and inflation,” said Brelina Ursi, chief U.S. economist at T. Rowe Price. new york times.
Stein van Neuerburg, a professor of real estate and finance at Columbia University, said: new york times: “There are widespread expectations that President Trump will cut taxes, which will further increase the nation’s budget deficit and debt. This current move raises concerns about what his policies will mean. reflects the most accurate estimates of the market.
With the recent elections, no one has any clear indication of what the real estate market or interest rates will do in the coming months, given the uncertainty of inflation. For investors who are considering just a rate cut to inform their decision-making, the easy solution is not to cut rates.
One of the great things about real estate investing is that if you do it right, you will succeed regardless of government decisions or economic fluctuations, and not because of them. It is important to work on basic trading analysis.
How much does real estate cost? cash flow After all the expenses? If you don’t have enough cash flow, don’t buy. There are still deals, sellers willing to sell at a discount, and tenants willing to rent. Now more than ever analyze the numbers And use smart judgment when buying deals that make sense now, rather than speculating about the future.
Ready to succeed in real estate investing? Create a free BiggerPockets account and learn about investment strategies. Ask questions and get answers from a community of over 2 million members. Connect with investor-friendly agents. And so on.
Note by BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.
