The Two Sides of Fed Rate Cuts in the Housing Market

The Federal Reserve recently slashed 50 base points off the federal funds rate, with experts expecting up to six more fed rate cuts between 2024 and 2025. And with mortgage rates slowly dropping since August, this means potentially lower rates for homebuyers moving forward.  

While this seems all good for the average Amir, it would also help to set proper expectations before jumping into the homebuying race.  

The Good in Fed Rate Cuts:  

Lower monthly rates 

Lower federal interest rates would directly correlate to lower mortgage rates, which is good for American homebuyers. For example, a $250,000 mortgage will only cost $1,342 monthly at a 5% rate, instead of $1,663 at 7%, saving homebuyers more than $300.  

Entice renters to be buyers 

One typical opposition to home buying is that renting is cheaper. But as rates become more affordable, owning a home can now become a more viable option than renting one.  

According to Apartments.com, the average rent in the US is $1,564 for a 699 sq. ft. home. Compared to the potential monthly rate of roughly $1,350 for a $250,000 home, that’s one less reason to stay as a renter. 

The Challenge in Fed Rate Cuts: 

More market competition 

With mortgage rates becoming more affordable, it’s safe to assume that more people will be shopping for homes. Thus, encouraging a more competitive housing market, with more buyers bidding for your target property.  

Higher property prices 

While rates may go down, this may not directly translate to lower property prices. Some may even say that with the higher demand for homes caused by lower rates, home prices may significantly rise. This is especially true in high-market areas where demand for homes is higher than others.  

Is Waiting for the Lowest Rate a Wise Choice? 

The question for homebuyers now turns from “Should I buy a home?” to “When should I buy a home?” 

Sure, waiting for the lowest mortgage rates may seem like a good option, as you can get the most out of your purchase. However, aside from the fact that the housing market is still volatile, you may miss out on moving into your dream home by that time.  

Experts recommend buying a home as early as your budget allows. The earlier you join the race, the less competition you’ll face from other homebuyers. Plus, there’s always an option to refinance your home if rates become better later. 

If you plan to refinance your home, talk to an ijaraCDC expert today to know your riba-free refinancing options. 

Embracing the Good and the Challenge  

Buying a home is becoming more rewarding, thanks to the changes brought by the Fed interest rate cuts. However, with the opportunity also comes its set of challenges. Working around those obstacles is the best way to take advantage of the benefits and transition from a renter to a homeowner.