The Fed Is Going To Start Cutting Rates Next Year!

In recent weeks, a seismic shift in the Federal Reserve's stance, from a potential rate hike to possibly three cuts next year, sent the markets into a state of euphoria. This pivot triggered record highs for the Dow and S&P 500, paralleled by the 10-year US Treasury yield falling below 4%. Concurrently, the average 30-year mortgage rates experienced a remarkable decline to 6.6%, marking a substantial 1.5% drop in just two months.

The downward trend in rates witnessed seven consecutive weeks of decreases since late October, following a peak at 7.79%, the highest level since late 2000. This trajectory mirrors the decline in the 10-year Treasury yield, driven by hopes of a cooling inflation scenario that could prompt the Federal Reserve to halt interest rate increases.
 

The Fed's decision to maintain its main interest rate for the third successive time, coupled with their indication of potential rate cuts starting as early as next summer, has fueled positive market sentiment. These factors, along with investor expectations for future inflation and global demand for US Treasurys, are influencing home loan rates.

According to Sam Khater, Freddie Mac’s chief economist, the anticipated decrease in inflation and the Fed's potential rate adjustments are likely to gradually thaw the housing market in the upcoming year.

Recent data showcasing a decrease in inflation to 3.1% in November, and the historically low jobless rate combined with unexpectedly high retail sales, underscore a robust economy and labor market. Despite this, concerns persist about potential inflationary pressures that might contradict the Fed's optimistic forecasts.

Lawrence Yun, Chief Economist for NAR, forecasts a dynamic real estate landscape ahead, anticipating the sale of 4.7 million existing homes, a rise of 13.5% compared to 2023. He highlights Austin, Texas, as a market to watch in 2024, emphasizing regional market trends and predictions.

Yun predicts a calming effect on rental prices in 2024, potentially curbing the consumer price index. Foreclosure rates are expected to remain historically low, defying earlier projections following the mortgage payment abatements during COVID.

Despite challenges for first-time buyers amid record low inventory, homeowners continue to benefit from substantial equity growth, reinforcing the long-term wealth-building potential of homeownership.

While uncertainties persist regarding inflation and mortgage rates, homeowners are poised to continue accumulating wealth, evident in the substantial disparity between homeowner and renter wealth, as reported by Federal Reserve data.

Stay tuned for more insights as we navigate the evolving dynamics shaping the 2024 real estate landscape and market trends.