Feds Cut Interest Rates—Now What? 

September 19, 2024

Feds Cut Interest Rates—Now What? 

It’s official; the Feds announced yesterday (Wednesday, September 18, 2024) that they are cutting the Federal Funds rate by 50 basis points, which translates to a 0.5% rate cut. This is exciting news for everyone in the real estate industry. The biggest surprise is the amount of the rate cut. Until it was announced, it was not known if the cut would be 0.25% or 0.5%, with most speculating it’d be 0.25%. The fact that the Feds cut it by 0.5% is a telling sign of confidence in the US economy. There’s no doubt that just about everyone feels that this rate cut is positive, but how does it affect Denver home sellers and buyers?

First, it’s very important to understand that the Fed’s rate does not 100% reflect the mortgage rate. You should not expect to see mortgage rates come down by that same 0.5%. However, mortgage rates do tend to follow the same trend as the Fed’s rate. This means it’s not unrealistic to expect to see rates fall some after yesterday’s announcement. However, TK Homes would like to remind our readers that rates have already come down since their peak earlier this year, leading up to this rate cut.  

At the time of writing this Denver real estate article, we’ve seen our clients being quoted interest rates in that very high 5s range to low-to-mid 6s range. Earlier this year, many buyers were seeing rates in the low-to-mid 7s. Many, including TK Homes, believe that the rates decreased in anticipation of the Feds doing a rate cut. If this is true, we might not see rates come down much further, as today’s rate already takes this cut into consideration. However, as stated above, many believed the Feds would only be cutting the rate by 0.25%, so the fact that we saw a 0.5% rate cut means there could be room for some continued downward pressure on mortgage rates. Time will tell.

There’s another theory that could play out after yesterday’s big announcement on the rate cut. Many believe, including to an extent TK Homes, that mortgage rates won’t actually have to drop any further for buyers to jump back into the market. Just hearing the news that the Feds cut the rate could push some buyers into the market simply due to the fear of missing out and the fear of home values going back up across Denver due to lower interest rates. Simply put, the news of a rate cut could be enough of a mindset change for many buyers that we will see an uptick in the market. These buyers would still be enjoying lower rates than we’ve seen since mid 2022. So, what does this mean to you as a Denver homebuyer or seller?

Denver Homebuyers »

First and foremost, we’d encourage you to understand that just because the Feds cut the Federal Funds rate by 0.5%, it does not mean your mortgage rate will be 0.5% lower. However, even if we don’t see mortgage rates come down any in the upcoming days or weeks due to the rate cut, we still could see buyers jump back into the market based on this news alone. If this happens, it might be more challenging to purchase a home in the upcoming weeks or months than in today’s current slower market conditions, as shared in our two most recent Denver real estate articles: September Denver Market Update and Is Is Time Running Out to Get a Good Deal on a Denver Area Home. If you want to purchase a home in the next 0-6 months, now could be the best time to take action so that you’re set up to take advantage of possible appreciation due to the lower mortgage rates we might see in the upcoming weeks and months.
 

Denver Home Sellers » 

Recently, Denver area home sellers have been faced with fewer buyers and buyers who are extremely picky when it comes to making a purchasing decision. This has resulted in higher inventory levels, longer days on market, and ultimately lower sale prices. With the news of the Feds rate cut, we could see more buyers come out of the woodwork. This might help homes that have been sitting get more showings, offers, and ultimately sell. Even if we saw homes start to go under contract quicker, I would not suspect we’d see homes sell for more than list price in the immediate future. This could mean that if you have been wanting to sell and purchase your next home, now could be the perfect opportunity to do so. You could be able to lock in a fair sales price, quicker and easier, and then still purchase your replacement home at today’s values versus the future’s value. However, if you’re looking to sell and not immediately purchase a replacement home, waiting a few months to allow for future rate cuts and lower interest rates could pay off by giving home values time to appreciate as demand grows.

Whether you are a homebuyer or seller, it’s important to understand that if the Feds trend continues to be rate cuts, interest rates are likely to follow suit and continue to trend down. It is important to know that you will likely be better off buying before rates drop much further and refinance in a year’s time to a lower rate versus trying to time the market and buy with the lower rate. If we can learn anything from history when rates were lower, home values in Denver can rise very quickly when demand increases. It’s believed that lower interest rates will naturally increase buyer demand in Denver.

Mortgage rates still have a way to fall before they reach pre-COVID levels; however, yesterday the Feds took a huge step in the right direction. TK Homes, like always, will be watching the Denver real estate market carefully and will continue to be a resource for Denver homebuyers and sellers looking to make their real estate dream a reality. If you want to chat about your specific real estate goals and how yesterday’s announcement regarding the Feds rate cut affects you, contact us today. We are here to help!
 

~ Written by TK Homes CEO/REALTOR®, Trevor Kohlhepp