The Sky (& Interest Rates) Are Falling
Ever since the summer of 2022, over two years ago now, everyone connected to the real estate industry has been waiting for interest rates to fall. At first the experts believed they’d start to fall in early 2023, then mid 2023, and then later 2023, and then early 2024 and then mid 2024 and lastly Fall 2024.
Six guesses to get it right isn’t that bad!
Just this week, the Fed has finally done it. For the first time in 4 years, since the start of the COVID pandemic, they lowered interest rates, by 0.5%.
So what does this mean? For interest rates today, almost nothing. Mortgage companies knew a rate cut was likely and so mortgage rates fell earlier this month already to just a bit over 6%. This Fed cut was already priced in. Still, compared to highs earlier this year in around 8%, 6% isn’t that bad.
It’s expected that the Fed will continue to cut rates slowly over the next few months. If this happens it’s possible that by the Spring 2025 market, interest rates will be in the low to mid 5s.
My personal opinion is that little will change about the stagnant market we have today until we get interest rates AT LEAST back into that range. Part of my reasoning is just simple math. Despite high rates over the last two years, housing prices continued to climb overall. PNW housing prices grew about 4% YoY and lower interest rates will probably make prices go up more.
Let me show you what I mean.
Let’s say you’re buying an average PNW house for $800,000 (wow) and let’s say you can get a 6% interest rate, with a 10% downpayment. Your principle & interest mortgage is $4,320 a month.
Let’s say you wait until next spring/summer when rates are at 5.5%. But prices, spurred by lower rates, have gone up another 4%. That house now costs $832,000. Same 10% downpayment gets you a principle & interest mortgage of $4,252.
$68 difference. Not much relief.
What About Current Homeowners?
There are still millions of homeowners who would like to sell and buy something else but they feel “stuck” in the 2.15% mortgage. And with good reason! Trading a mortgage made with pre-2022 housing prices for an interest rate, even at hypothetical 5.5% at 2024 prices is painful.
Perhaps the defining question for the 2025 housing market is how many current homeowners are going to accept that pain about selling and losing their mega-low, once in a lifetime interest rate? In a sort of prisoner’s dilemma, the more of them that decide to do this together, the cheaper their next house will be.
As always, it’s only a great time to buy or sell if it’s a great time to buy or sell for you.
How Much is My House Worth?
Here’s a quick online tool to help you.
What Would My Mortgage Payment Be?
An online calculator to help you.
Michael Perrone is a licensed managing real estate broker in Washington State and is the owner of The Perrone Real Estate Group. You can reach his office at 425-224-6040 or by subscribing and responding to these newsletters.