The Fed Held Rates Again — So When Will Mortgage Rates Come Down?

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Fed day

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux, the Mortgage Mom, and every Wednesday at 1:00 Pacific I bring you everything happening in real estate and mortgage. Today was a really big day with our Fed meeting, so we're going to talk about that — I'm going to read you the statement, and we'll talk about what it means for interest rates and how much longer they'll stay high. Then we're going to touch on the NAR settlement — the National Association of Realtors. It's headline news, and I've had many questions from clients asking whether it's being made into a bigger deal than it truly is. This is an interactive show: put your questions into the chat and I'll read them out loud and answer them. I can see comments from YouTube, Facebook, and Instagram, so pick your platform.

The FOMC statement, read in full

Here's the Federal Reserve press release from 2 PM Eastern today. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run, and judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5.25 to 5.5%. In considering any adjustments, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2% objective, and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge — taking into account labor market conditions, inflation pressures and expectations, and financial and international developments.

What Debbie took from the press conference

That was the statement — and then Chair Jerome Powell always holds a press conference, which I watched. We can all hear the same words and take them different directions, so let me give you my interpretation.

The Fed raised the funds rate over and over between 2022 and 2023 — meeting after meeting. The last increase was July 2023, and they've held it steady ever since; today, in March 2024, they held it steady again. That's no surprise to me. Some economists and market players believed we could see the first cut this March, after the Fed spoke in January. I really didn't believe that would happen, and it didn't. The Fed has said over and over that as long as the economy and the job market stay in good shape, their stance is higher for longer.

But from the press conference, my take is that we will still see two to three — probably three — rate cuts this year in 2024. Powell also said he expects some bumps in the road on inflation. We saw great improvement, then things slipped a little backwards, which keeps rates higher for longer — but as of today those bumps are not too concerning, as long as inflation continues to ease by the next meeting.

Why mortgage rates improved on a no-cut day

Here's the part that surprises people: we actually saw interest rates improve a little today. Clients ask — they didn't change rates, so why would mortgage rates get better? Remember, as I've said on many shows: mortgage rates are not directly tied to the Federal Reserve prime rate. They're tied to the market, very much like stocks. News comes out, one stock jumps and another dumps — and mortgage rates behave the same way, because we're tied to mortgage-backed securities, Treasuries, and 10-year notes. It's what's happening in the market that drives rates up or down. Of course, as the Fed funds rate eventually comes down, the money banks lend gets less expensive and that helps drive mortgage rates lower too. But consider: the Fed hasn't cut at all since July, we saw our highest rates of the cycle in October 2023, and rates have been easing ever since. Today the market liked what it heard, and we got a nice little uptick in pricing.

The very last article I read before going live — and this all happened within the past couple of hours — said about 70% of experts are now pricing in the first cut at the next meeting in June. I don't know about that. I've been saying for about 18 months that I didn't expect any cuts until the beginning of fourth quarter 2024. If we get a June cut I'd be thrilled — but the Mortgage Mom is thinking the meeting after June, which would be late July or August, and I'm confident we'll most likely see the first cut by the beginning of the fourth quarter. Either way, the greatest part about today is that we're one step closer: rates didn't go up.

What this means for you

We've been talking about this since late 2023: as rates start to come down, a lot of people who've been on the fence are going to jump into the market. The most recent data this week showed mortgage applications up quite significantly — and more applications means more buyers on the street and more competition for you.

Now, I don't believe every single person should be trying to buy a home right now just to get ahead of the market, and I want to drive that point home. There's a right time for every person. If you own a home with a nice low interest rate, and selling to buy the next home would mean a much higher rate and payment, staying put and keeping your goals on hold may be exactly the right financial decision for your monthly cash flow — and some people might want to shoot me for saying that, but I want you making the best decision for you.

But if you're a renter? You're paying 100% interest. All of your money is going to somebody else, who will use that property for their pocketbook, their retirement, their portfolio — while you likely help maintain it. If you've been thinking “I really want to buy, I just don't like these rates,” understand what happens at the very first announced cut: a massive change in applications and buyers out looking, and yes, more listings too — but not enough to offset the demand. There will be much bigger buyer demand and a lot more competition.

So why are you sitting on the fence? We probably have three to four months before that first cut. Call us for a free consultation: how much can you afford, what does the down payment look like, what will the monthly payment be? We could be talking about a 2-1 buydown, getting your starting rate 2% lower to give the market time to adjust at a comfortable payment — and when it does adjust, you refinance into the permanent rate. Talking to us is free, and we don't pull credit for the consultation. And if you're a seller who's been waiting: you also need to get pre-approved, because you can't assume that owning a home today means you'll qualify for the next loan. Get the loan lined up before you list.

California buyers: the CalHFA Dream For All portal opens April 3 to be part of that lottery. If you're a first-generation first-time buyer and haven't started the application, you're missing out — more on that below.

The NAR settlement: first look, don't panic

Now, the topic everybody's been calling and emailing about since it hit the headlines Monday: the NAR settlement. I've had first-time buyers say — I barely have my down payment and closing costs scraped together, and now I have to pay a buyer-agent commission too? Am I out of the market?

Let me start here: this is a news subject, so it will always be made more exciting and bigger than what it probably turns out to be. Don't get frustrated, and don't feel like anything is going to change about your ability to buy a house. How you buy that house is going to change a little bit.

A lot of people have rushed out with opinions. I'm not that person — I like to read, explore, and investigate, so the information I bring you is correct and you can trust it. I've already started my research, including notes on every loan program and how much you can ask for from a seller under each. So today is a general overview, and next week we're devoting the entire show to a deep dive — tips for buyers, tips for sellers, and I'm inviting real estate agents on with me. It will come from the lending perspective, since I'm a mortgage loan officer: what you can and can't do.

Here's the gist as I read it. The majority of the time, when you list your home, you agree to a commission with the listing agent — call it 6% just for numbers — and the listing agent offers to share part of it, say 3%, with an agent who brings the buyer. It's a shared, split commission. I have seen a buyer pay their own agent's commission, but it's very, very rare. The lawsuit came from sellers who felt they didn't really have the opportunity to negotiate what the buyer's agent was getting paid — and that if they could have, it would have saved them money. That's my interpretation as the Mortgage Mom; others may read it differently.

What changes: come July, once the settlement is agreed to, it's left up to the seller to negotiate the commission and to choose whether to offer a buyer-agent commission at all. If they don't offer one, the buyer would have to pay their own agent. But there are going to be ways to work with that — you can still write into a contract that the seller pays the buyer's agent, and there are seller credits whose limits depend on the loan program you choose. Which programs allow what, how much you can ask from a seller, whether a buyer can pay the commission themselves, and how the buyer-agent relationship changes — that's next week's deep dive.

Q&A: what is CalHFA?

A listener asks: “A bit ago you mentioned CalHFA, I think it was — can you explain what that is?” Great question. CalHFA is California's housing finance agency, and it offers down payment assistance to many home buyers looking in the state of California — if you're in another state, this particular one isn't for you. They have many programs for first-time buyers, and the new one is called the Dream For All shared appreciation program. The portal opens as a lottery, so you have to hope to be selected. I can give you the nuances of the program, help get you pre-approved, and get you the certificate you need to enter the lottery. There's also a workshop they require first-time buyers to complete to be entered. The best thing you can do is schedule a consultation — call the office or book an appointment on the website — and we'll make sure you qualify under the program guidelines and take you through it one-on-one.

Wrap-up

So: the Fed left rates the same today, they're still planning cuts this year, and we are moving fast through 2024 — blink and we'll be at Thanksgiving. Knowing rates are on their way down, knowing things get crazy at that first cut, and knowing mortgage applications have already ticked up to their highest numbers in quite some time: if you've been thinking about buying or selling and haven't gotten pre-approved, don't wait too long and end up competing against multiple offers. Get ahead of the curve.

If you don't want to miss next week's NAR deep dive, text the word LIVE to 844-935-3634 — that's 844-WE-LEND-4 — and you'll get one text a week with the topic and the link to join, no spam. Same number to call the office for a consultation, or book an appointment at mortgagemomradio.com. Join me every Wednesday at 1 PM Pacific, put your questions in the chat, and I'll answer them for you. Have a fabulous rest of your Wednesday, and I'll see you for a real big show next week. Talk to you all real soon.