All Welcome The Fed’s Rate Cut
Industry participants from all sectors are hailing The Fed’s decision to finally cut rates as a positive. Many say this will help the mortgage industry rebound.
MBA SVP and Chief Economist Mike Fratantoni said, “The FOMC lowered rates by 50 basis points at its September meeting and signaled that this is the first cut in a series that should bring rates down by about 2 percentage points by the end of 2025… Mortgage rates likely had this cut – and this expected rate path – priced in, and lower mortgage rates, now close to 6%, have resulted in much more refinance and some additional purchase activity in recent weeks. We do expect that if mortgage rates remain near these levels, it will support a stronger than typical fall housing market and suggest that next spring could see a real rebound in activity.”
Putting this in perspective, “a reduction of even 25bps in mortgage rates could result in real money staying in the pockets of consumers,” added Satyan Merchant, senior vice president, automotive and mortgage business leader at TransUnion. “For example, U.S. consumers with a mortgage balance of $244,000 who currently have a 7% interest rate could see a potential reduction of almost $50 a month in their monthly mortgage payment. And if the reduction is 50 bps, that same consumer could potentially save almost $100 a month when making that same mortgage payment. And in states where the average mortgage balance is higher, those savings could be even greater. One example is California where the average mortgage balance is more than $430,000. A reduction of 25 bps could save those same consumers about $75 a month and nearly $150 if rates drop 50 bps.”
Lenders on the frontline like A & D Mortgage welcome this move. “Much of the Fed’s predicted rate cuts have already been priced in by rates traders, who believe that homebuyers have been on the sidelines waiting for lower rates. We are already seeing benefits for homebuyers who see rates decreasing,” noted Max Slyusarchuk CEO at A&D Mortgage. “Origination volumes at mortgage lenders like A&D Mortgage have already seen growing lending activity, with first half originations in 2023 totaling just over $1 billion vs. over $1.5 billion in 2024, representing a year over year increase of 50%. We are excited about the macroeconomic tail winds provided to mortgage lenders by upcoming Fed monetary policy and look forward to servicing our borrowers as best we can as demand for mortgage financing and re-financing increases into 2025.”
In conclusion, many see this as the start of a housing rebound. “The soft landing is working, and the Fed is looking to stimulate housing while the economy is still somewhat in a good spot in terms of inflation and consumer confidence,” pointed out Charles Williams, CEO of Percy.ai. “They will need to lower rates more to create a mini refinance boom, and builders are now constructing more starter homes. So, with additional rate cuts coming later this year, 2025 will see a housing market rebound in both existing and new home sales.”
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