In an anticipated move, the Federal Reserve announced its second rate cut since the Great Recession. Its benchmark overnight lending rate is now 1.75 percent to 2 percent, down a quarter point.
The move hopes to motivate a healthy market, in which the Fed says economic activity has been “rising at a moderate rate.” Additionally, since its July reportings, the Fed says the labor market is still strong and job gains have been solid over the most recent months, with unemployment maintaining low rates. Business fixed investment and exports aren’t faring as well, however—largely in part to U.S.-China trade war concerns.
Could this have implications for buyers? While fixed-rate mortgages are directly impacted by treasury yields and not the benchmark rate, borrowing costs could drop in response to the rate cut. Right now, the adjustable-rate mortgage stands at an average 3.36 percent, according to Freddie Mac.
Ruben Gonzalez, chief economist at Keller Williams, doesn’t foresee further change to long-term rates in anticipation of the Fed’s move.
“Unless we see an increase in uncertainty around Fed policy decisions, we don’t think we will see a lot of movement in mortgage rates happen as a result of Fed policy announcements,” said Gonzalez. “Trends in mortgage rates right now are being driven primarily by impact of trade policy and global economic pessimism on long-term Treasuries. Recently, we have seen some stabilization of Treasuries, and mortgage rates have risen slightly. However, without some genuine resolution to geopolitical tensions around trade, mortgages rates are likely to remain low for the remainder of the year.
“The impact of low mortgage rates on the housing market appears to have been limited by the impact on consumer sentiment of the same market events which drove rates down,” added Gonzalez. “We continue to expect existing home sales to decline in 2019.”
Chinese international property portal Juwai says there has been recent progress in the international markets.
“Juwai.com data shows Chinese buying enquiries for US residential real estate are at higher levels than we have seen since 2017,” said Executive Chairman Georg Chmiel. “After wallowing at low levels in the first quarter, Chinese buyer enquiries bounced back with 39 percent growth in the second quarter.
However, depending on global market activity, interest could drop just as quickly.
“The Federal Reserve is balancing a robust domestic economy against a grim international environment,” added Chmiel. “Yes, U.S. unemployment is very low. Still, global risk factors such as the trade war, the slow-down in China, Brexit, and the oil shock could hurt the US in the months ahead.”
In July, the Fed reversed course, providing its first rate cut since raising eight times throughout the course of the Trump administration. Some Fed officials are predicting one more cut by end of year, based on projections matching up with economists’ expectations.
Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com.
