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House prices hit its highest level since late October last week, ahead of what could be a Federal Reserve anthem reduce interest rates.
At his last meeting of the year plan on Dec. 17-18, Fed is expected reduce his interest rate by 0.25%its third reduction in 2024. However, prospective home buyers should not expect housing prices to suddenly drop by the same amount. Although housing prices are affected by the actions of the Fed, they are closely related to the movements of the bond market.
“A lot of times mortgages are very volatile,” he said Jacob Channelfinancial analyst at LendingTree. “We will need more time before we know whether the recent decline in interest rates reflects long-term trends or whether it is a blip,” Channel said.
More recently, expectations have been dampened by lower interest rates next year due to doubts about whether President-elect Donald Trump will be elected. taxes and tariffs it will cause inflation or disrupt the economy. Depending on how the economy plays out in the first days of the new administration, the Fed could hold off on some measures until March or later, Channel told CNET.
While nothing is set in stone, experts say Wednesday’s cuts could be the last for a while. House prices it could fall in 2025 if economic data weakens and the Fed continues to cut interest rates. But as things stand now, that’s the biggest “if.”
read more: 2025 Debt Forecast: Low Rates Won’t Come Back Under Trump
The Fed, inflation and housing prices
The central bank has two main goals: to keep jobs high and to contain inflation. It depends inflation and science of sciencewhich acts as a measure of the health of the economy, by deciding whether to change its interest rate in a short period of time up or down.
When inflation peaked in 2022, the Fed raised interest rates to reduce demand and slow rate growth, and interest rates rose in response. The Fed he tried to reduce the interest rate earlier this fall, as data showed a cooling of inflation and a weak labor market.
The latest inflation data, which shows prices are rising 2.7% every year in November, it is not strong enough to prevent the Fed from cutting interest rates this week. But it raises alarms that progress has been stalled, if not stopped altogether, on getting inflation to the Fed’s 2% annual rate.
At the moment, the labor market is not showing any major flaws. Even if the Fed wants to avoid borrowing at too high a rate – it can causing the economy to go into trouble — and I’m also careful to cut interest rates too quickly to ensure that inflation resumes.
Where house prices will go in 2025
With inflation still above target and job growth, investors in the bond markets are anticipating Fed rate cuts and long-term interest rates, which are expected to remain on hold. rising housing prices.
“Lending funds will take a direction from the bond market, which is also affected by inflation and other economic factors,” he said. Melissa CohnVice President at William Raveis Mortgage. “If the economy continues to be strong, then we will see a little bit of a slowdown in debt repayments.”
Although experts predicted that prices will reach about 6% by the end of 2024, the estimates have changed significantly. Fannie Mae now he expects an average 30 year fixed mortgage to be above 6.5% until early 2025.
Experts agree that interest rates will fall in 2025 as the economy shrinks. This means that house prices will be more or less the same in the short term.
What else is happening in the housing market?
Today a poor housing market the effect of high mortgage rates, a long-term homelessnesshigh home prices and loss of purchasing power due to inflation.
🏠 Low home inventory: A stable housing market usually lasts five to six months. Most markets today are about half that amount. Although we saw a surge in new construction in 2022, according to Thatwe still need about 4.5 million houses.
🏠 High debt prices: In early 2022, home prices were near record lows of around 3%. As inflation rose and the Treasury began to raise interest rates to slow it down, interest rates on loans doubled within a year. In 2024, interest rates are still high, forcing millions of prospective buyers out of the housing market. That’s it caused housing sales to declineeven during the busiest home buying months, such as spring and early summer.
🏠 Lock rate: Since most of the house owners are trapped in the trees of the house below 6%, and some as low as 2% and 3%, do not want to sell their current homes because it would mean buying a new home with a very high interest rate. Until rental rates fall below 6%, homeowners have little incentive to list their homes for sale, leaving a shortage of resale properties.
🏠 High house prices: Although demand for housing has decreased in recent years, housing prices remain high due to a lack of supply. The average US home price was $434,568 in September, they were up 5.1% year over year, according to Redfin.
🏠 Rising prices: Inflation increases the cost of goods and services, reducing our purchasing power. It also affects housing prices: When inflation rises, lenders often raise interest rates on consumer loans to cover the loss of purchasing power and ensure profitability.
Expert advice for home buyers
It is not good to rush buying a house you don’t know what you can afford, so set a budget for buying a home. Here’s what experts recommend before buying a home:
💰 Build your credit history. Your credit score is one of the main factors that lenders consider when deciding whether you qualify for a home loan and what your interest rate will be. To work a debt of 740 or higher will help you qualify for the discount.
💰 Save for more cashback. A bigger one down payment it will allow you to take out a smaller loan and get a lower interest rate from your lender. If you can afford it, a down payment of at least 20% will also eliminate the need for private home insurance.
💰 Shop around for mortgage brokers. Comparing loan offers from multiple home lenders can help negotiate a better price. Experts recommend that you get two or three loan offers from different lenders before making a decision.
💰 Consider the rent vs. buy equation. Choosing to do so rent or buy a house It’s not just about comparing monthly rent to housing costs. Renting offers flexibility and lower future costs, but buying allows you to save money and improve the value of your home. The best choice depends on your budget, lifestyle and how long you plan to stay in one place.
💰 Consider rental properties. One way to get a low interest rate is to buy using it credit facility. One loan point is equivalent to a 0.25% reduction in your loan amount. Generally, each point will cost 1% of the total loan.
