In June, the Federal Reserve opted to maintain their interest rate pause, indicating a cooling market that remains stable but not yet ready for a rate drop this year. This decision brings much-needed stability to mortgage rates, according to Thomas Eller, Vice President and Senior Mortgage Loan Officer at Raleigh’s North State Bank.
“Starting the last half of last year, we got some good inflation data,” Eller explained. “The markets were convinced going into 2024 that we were going to see rate cuts in the spring to middle part of 2024. Of course, what happened is inflation numbers went right back up again. The market started pricing back in rate hikes.”
Eller observed that spring data shows the market responding positively to the Fed's rate pause, leading to a deceleration in inflation. “The Fed has since had two meetings that are very neutral — not saying too much that rates are going to go up, but they're also not saying rates are going to go down either,” he noted. This implies that mortgage rates will be assessed monthly throughout the summer, with potential rate cuts in the latter half of the year if inflation continues to decrease.
“You're probably going to see a lot of pressure be put on the Fed to put some more certainty behind a rate probability cut, which will be in September,” Eller suggested. “If we don't get that, we think we'll get one in the November cycle. Rates are going to be cut this year unless something happens with the next July inflation report. We've been saying every month, ‘Well, we're going to have to wait and see what happens next month.’”
For prospective homebuyers, delaying purchases in hopes of lower rates could lead to difficulties due to the high demand and limited inventory in the Triangle market. “The longer you wait, the more you will fight pent-up demand,” Eller warned. “We went through this cycle with a gridlocked real estate market, meaning if rates would have kept staying low, we wouldn’t have had enough inventory. We were just digging ourselves into a hole.”
Eller described the "golden handcuffs" scenario where homeowners who remained in their homes during the COVID-19 pandemic are hesitant to move because of their low mortgage rates of 2 or 3 percent. “Those people haven’t gone anywhere,” he explained. “What's happened is you've built up a lot of current homeowner resales that also want to move because they've spent the past four years doing nothing except looking at improving their lifestyle. The longer you wait to purchase, the tougher it is to buy because you've got two headwinds: one, pent-up demand, and two, greater affordability with lower rates.”
As inflation improves, Eller expects rates to drop, revitalizing the real estate market and increasing competition, especially for first-time homebuyers. He also highlighted the recent enhancements to first-time homebuyer products and various incentives from local, state, and federal governments. “Pretty much all of the down payment assistance providers have either recommitted or increased their subsidies. So that's good,” he said.
Eller emphasized the persistent high demand for homes in the Triangle. “Customers that are on the fence about buying right now — the longer they wait, the more they're going to fight the demand that we left on the table, which was exorbitant in 2022,” he said.
Overall, the outlook on mortgage rates is becoming more positive. “It's all positive news as far as what's on the horizon, what's going on in our world,” Eller commented. “Basically, the Fed has said, ‘Guys, we're very close. We just want to know we're heading in the right direction,’” with July's inflation numbers being a key determinant in their next steps.
Eller advised buyers to work with trusted, local professionals to navigate the market. “In any market, it doesn't matter if it’s up or down, tight, soft,” he said. “Align yourself with a local person on the ground. It’s of the utmost importance. It's as important as the real estate agent that you choose. If you're working with a real estate agent, ask them for recommendations for the local market. Just because you used somebody eight years ago, it is not necessarily the person that you have to use again. It's good to find local recommendations."