Will Fed rate cuts stop the housing market roller coaster?

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After a period of hiking and then holding rates that kept home sales muted, the Fed is set to return to rate cuts this month.

The Federal Reserve has played a key role in the roller coaster nature of the housing market since 2020. How will Fed cuts affect the housing market?

“Once interest rates begin to fall, I think there’s a boom — on the homebuying side, but also on the homebuilding side — through access to capital,” says Jim Tobin, CEO of the National Association of Home Builders., they could also face the same run-up in home prices brought on the last time the Fed cut rates, in 2020.

That rush in demand escalated home prices. In June 2020, a 30-year fixed mortgage averaged 3.44%. That same month, the median existing-home sale price was $294,400. One year later, rates were still in the 3s, but the median home price had shot up to $362,800 — a 23% increase. As rates rose that year and into 2023, the annual rate of existing-home sales dropped, from an average 5.33 million in the second quarter of 2022 to an average 3.88 million in the fourth quarter of 2023. When rates tracked back down in the first quarter of this year, the annual rate of home sales ticked up.housing inventory

The months’ supply measure has since increased alongside mortgage rates, to 4.1 months as of June, according to NAR.

 

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