Federal Reserve Chair Jerome Powell’s recent announcement that an interest-rate cut in September is “on the table” has mortgage, investment, and real estate professionals optimistic for a gradual recovery of the stagnant residential market.
At his press conference, Powell stated that the “time is drawing near” for the central bank to reassess rates if inflation continues to cool down. Currently, the federal fund rates are in a holding pattern within a range of 5.25–5.5 percent—the highest level in 23 years. According to Bankrate, the current mortgage rates last week were around 6.8 percent.
Valerie Saunders, president of the National Association of Mortgage Bankers in Washington, D.C., told The Epoch Times she believes the Federal Reserve will cut rates in September.
“Based on all of the economic data currently being received, I have seen an estimate of a half-point cut,” she said. “At this rate, any cut will be a good cut.”
Mortgage applications across the country fell by 3.9 percent in the fourth week of July, representing the sharpest weekly decline in mortgage demand in nearly two months. Applications for a mortgage to purchase a new home fell by 1.5 percent from the previous week, a third consecutive decline. Applications for a contract to refinance a mortgage dropped by 7.2 percent from the previous week.
“However, I do think that an interest cut of any size will stimulate the stagnant housing market,” said Saunders.
Dottie Herman, vice chair and former CEO of Douglas Elliman in New York City, told The Epoch Times she’s uncertain if any substantial rate cuts will happen this year.
“We’ve heard that before, but we haven’t seen anything yet,” she said. “Any little bit will help because inventory is scarce, and homes are unaffordable for many. I think when rates hit 5 percent, it will incite the market, and we’ll start to see a lot more buyers out there.”
Herman noted that the majority of today’s buyers are millennials, those ages 28 to 43.
However, even a surplus of buyers will not necessarily turn the tables into a buyer’s market. “Nationally, the market is still short by over 4.5 million homes, so more buyers out there will just mean more competition for existing homes,” she said. “I tell those people who want a home to keep looking now.”
As for potential home sellers who are also waiting on the sidelines to list their properties, Herman said those who were lucky enough to get rates of 2.5–4.0 percent during the pandemic are probably not going to move.
“Those people are going to stay in place, but anyone who bought a home before COVID paid more in interest, so they may consider selling if the current rates are reduced enough,” she said.
Robert Hodgins, visionary fund manager with Sand Hill Road Technologies Fund in Miami, Florida, told The Epoch Times he thinks any decision the Fed makes will depend on current economic data. “They held rates steady in July, but if inflation continues to calm, I think we could see some cuts,” he said. “Typically, lower rates have a positive impact on the housing market, as more people may be able to buy homes with more affordable mortgage payments.” The Sand Hill Road Technologies Fund specializes in late-stage private equity investments.
Still, he cautioned about inventory levels, as most real estate markets across the nation remain lower than normal. “The housing market is influenced by a lot of factors, so a rate cut doesn’t necessarily guarantee the market will spring back right away, but it would be a great first move in the right direction,” he said.
Hodgins also believes that the upcoming election could have an effect not only on the housing market but also the overall economy in general. “Whenever you have a presidential election, there’s always a lot of uncertainty as to what’s going to happen,” he noted.
Any interest-rate cuts could also benefit the commercial real estate market, which Hodgins said has been suffering since the pandemic.
“People have started to go back into the office now, but it’s been slow recovery for the commercial market,” he said. “There’s still a lot of vacant office space out there to be sold or leased.”
Ashley Tison, Esq., founder of OZ Pros, an opportunity zone consultancy, is hopeful for a break in the interest rates, as many of his commercial clients have been adversely affected by higher rates. “Due to higher construction and material costs, a number of projects have been stalled and many developers have had to take a hiatus,” he told The Epoch Times. Based in Charlotte, North Carolina, Oz Pros has advised more than 500 commercial property investors on how to maximize tax savings in real estate.
Escalating interest rates forced one of Tison’s clients to change his 80 percent financing model to an alternative method of seeking private equity for his development. “People have to get more creative about how they do their deals,” he said. “In addition, taking advantage of opportunity zones has tipped the scales to help them get things done”
Tison also believes the Fed will reduce rates in September, especially with a national election looming in November.
“I think there’s going to be significant pressure for them to make that move,” he said. “Government leaders may want to see the economy in the best shape for election time, so we may see an even bigger change this time than in recent history.”
