When Will Interest Rates Go Down?
That’s the number #1 question on almost every buyer’s (and agent’s) mind. Gosh, it’d be wonderful if we could give you a simple answer: a date or even a rough estimate. And if you Google that question, you’ll get many different opinions. Because the only actual authorities who could give a timeframe, the Federal Reserve, are unsure.
BUT! They do know the conditions it would take to lower interest rates.
Backup, who is the Federal Reserve? Also known as the central banking system, it’s the department in the government responsible for increasing employment, stabilizing prices, and managing long-term interest rates. They prevent, minimize, and navigate financial crises by raising/lowering mortgage interest rates. So when the pandemic started in March 2020, they dropped the 30-year fixed rate to 3.5%. The Federal Reserve said, “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States.” Cutting interest rates made buying a home easier, sheltering our housing market and boosting our economy for those two years.
As we explained in a recent blog, interest rates were increased to start correcting the market. In October, they jumped to 7.5% and dropped to 6.5% (quite a massive shift).
But the Fed is preparing to stabilize interest rates at a lower rate when we reach certain economic conditions.
The Fed will relax mortgage interest rates when:
- Unemployment reaches 4.4% (at the end of October, it was 3.7% and slowly climbing).
- Consumer Spending goes down, which will lower the GDP (it increased by 2.6% last quarter).
- The Rate of Inflation decreases to 2.2% (it dropped in October to its lowest since January – 7.7%).
These shifts will indicate a recession. Like the pandemic, the government will respond by stabilizing mortgage rates at a lower price point.
How low, you ask? The government will decide as the recession unfolds. And if history repeats itself, we’ll likely see a jump in demand from buyers who’ve been waiting to purchase (creating a more robust seller’s market: higher sales prices, less time on the market, etc.).
So if you’re thinking about buying or selling, let your RE/MAX Alliance REALTOR® know. Waiting until interest rates drop may not (or may) be the best strategy for you. You’ll only know by talking with your lender and RE/MAX Alliance agent (who can recommend excellent lenders).
Remember, unpredictable times can create unexpected opportunities. Your RE/MAX Alliance REALTOR® can prepare you to act when the right home hits the market (or as soon as interest rates drop).
Sellers, it’s unlikely we’ll see such an extreme seller’s market again. So start working with your RE/MAX Alliance agent on a game plan. January could be a great time to do some home improvements/remodeling so you are show-ready when it’s time for you to list (which will be vital for you to receive a great offer).
Together you’ll find the path that meets your real estate needs and dreams.
Sources: bea.gov, federalreserve.gov, freddiemac.com, tradingeconomics.com