How did the Fed’s rate cut affect the LA market, and will more rate cuts help?
The Fed’s late September rate cut (25 basis points) – the first in a long time – had an immediate psychological and financial impact. Mortgage lenders price in expectations, so even before the cut, we saw rates slip a bit in anticipation. After the cut, mortgage rates fell to the lowest they’d been all year (around 6.3%), and that sparked a flurry of activity in LA.
Buyers who had been stretching their debt-to-income ratios could suddenly qualify for slightly more, or at least feel more comfortable with the monthly payment. We had some listings that had languished over the summer get offers in early October once that rate relief hit. It’s a small change but symbolic – it signaled a turning point from rising rates to (hopefully) falling rates.
Now, if the Fed continues to cut in 2024 (slowly, as they likely will if inflation behaves), mortgage rates could dip into the high-5% range by late 2024 or 2025. For LA, every point drop in mortgage rates is a big boost to affordability (such as it is) and buyer demand. We anticipate more buyers will come off the sidelines as rates ease, which could lead to more competition for homes again. This is why some savvy buyers are trying to purchase now – before that potential influx.
For sellers, more rate cuts mean more buyers and possibly higher prices, though if cuts also bring more listings (as move-up buyers feel comfortable selling), it might balance out. One thing to note: the Fed’s moves also affect the general economy; if they cut because of a weakening economy, that could diminish some housing demand due to job concerns. But if it’s a gentle landing scenario, rate cuts are great for housing. Bottom line: the September cut was a tailwind for LA’s housing market, and further cuts should help stimulate both sales and price support going forward.