How the Fed’s Rate Moves Could Help Home Buyers in 2024
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What is the main topic discussed in this episode?
Here's your Money Briefing for Friday, February 2nd. I'm J.R. Whelan for The Wall Street Journal.
How will the Fed's decision to hold rates now signal future rate cuts for 2024?
The Federal Reserve held interest rates steady this week and signaled it could begin lowering rates later this year. Mortgage rates could follow suit.
They're looking better overall than they did in 2023. The chief economist at National Association of Realtors sees mortgage rates Dropping to around 6.5 for the rest of the year. Another economist at Redfin sees rates in the low sixes by December. So they have been falling and a lot of homebuyers are really hopeful they're going to continue to fall.
We'll talk to Wall Street Journal personal finance reporter Veronica Dagger after the break.
The Federal Reserve is taking a wait-and-see approach to lowering interest rates in 2024. How can homebuyers capitalize on that? Wall Street Journal personal finance reporter Veronica Dagger joins me. Veronica, how does the Federal Reserve's moves regarding interest rates impact mortgage rates?
Well, the Fed moves don't have an impact on mortgage rates directly, but rate cuts usually lower the yield on the 10-year Treasury, which is an indicator lenders look to when setting mortgage rates.
So what's the outlook for mortgage rates in 2024?
They're looking better overall than they did in 2023.
How do Fed moves indirectly affect mortgage rates through the 10-year Treasury yield?
And so that's really good news. The chief economist at National Association of Realtors sees mortgage rates dropping to around 6.5 for the rest of the year. Another economist at Redfin sees rates in the low sixes by December. And just for context, last fall, the average rate of a 30-year fixed mortgage rate mortgage pushed close to 8%. And right now they are around 6.69%.
What is the outlook for mortgage rates in 2024 and how do forecasts compare?
So they have been falling and a lot of homebuyers are really hopeful they're going to continue to fall.
So the people you spoke with, they see the Fed lowering rates this year, which could in turn lower the 10-year Treasury yield?
Exactly. And so they think that's going to happen. They're pretty confident. I mean, there's nothing that's 100 percent sure or no one has a crystal ball. But overall, they're thinking directionally rates are going down. We may see some short term bumpiness in the near term as the market shakes out, whatever the Fed is saying. But overall, the trend is looking positive for buyers.
So what does a decline in rates look like in terms of monthly payments for homebuyers?
So take, for example, you have $400,000 home and you put about 20% down and you have a 6.93% 30-year fixed mortgage.
How much could a decline in mortgage rates reduce monthly payments for a typical buyer?
If you have that situation, you're paying about $2,113 a month to your mortgage. Now, if rates drop to, say, 6.18%, your monthly payment is going to fall about $160. And so that's a nice chuck and change for some people. And over time, that savings can add up to tens of thousands of dollars.
But for a lot of people, that's still pretty expensive. And so how can they get a lower rate than the 30-year rate that's often publicized?
Most people hear that big number, that 30-year rate, and they get scared off. That's just an average. There's ways to lower your rate depending on your own financial situation. For example, if you have a better credit score, you can get a better rate. Increasing your credit score, even by a small amount, can help you reduce the cost of buying a home.
Does it pay to shop around at different banks for a more attractive rate?
It really does. It's something so many people don't do because they get intimidated and there's a lot of jargon when it comes to mortgages, but shopping around can really save you money. There's been some recent studies that it can add up to an average of 0.10 percentage points. So for example, you could save a couple thousand dollars or more, tens of thousand dollars over the course of the loan if you shop around. So don't take that first offer.
What practical steps can buyers take now to secure a lower mortgage rate than the headline 30-year average?
Take advantage of the financial relationships that you have, especially with your existing bank, and see what it would take for them to sweeten the pot, offer you a mortgage that's more competitive than what you're seeing advertised, Sometimes that means transferring a little bit extra money or sometimes a lot of extra money to their bank.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:02–0:10
2
How will the Fed's decision to hold rates now signal future rate cuts for 2024?
0:10–1:47
3
How do Fed moves indirectly affect mortgage rates through the 10-year Treasury yield?
1:47–2:16
4
What is the outlook for mortgage rates in 2024 and how do forecasts compare?
2:16–3:11
5
How much could a decline in mortgage rates reduce monthly payments for a typical buyer?
3:11–4:39
6
What practical steps can buyers take now to secure a lower mortgage rate than the headline 30-year average?
4:39–5:29
7
How do mortgage points work and when do they make financial sense?
5:29–6:18
8
Could falling mortgage rates improve housing inventory and encourage more sellers to list in 2024?
6:18–7:48
Speakers
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