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The surge in mortgage rates, with the average for a 30-year fixed-rate mortgage surpassing 7%, has created a challenging environment for potential homebuyers in the United States. The substantial increase from around 3% at the beginning of 2022 has contributed to a slowdown in the housing market. Prospective first-time homebuyers are hesitant, and existing homeowners are reluctant to sell as they prefer to maintain the lower rates they secured earlier.
The consequence of fewer homes being listed for sale has led to a shortage of housing inventory, further influencing property prices that show no immediate signs of decline. While these factors pose obstacles for those eager to enter the housing market, there is a glimmer of hope in the form of potential interest rate cuts by the Federal Reserve.
Federal Reserve’s Role
The Federal Reserve has been responsive to rising inflation, prompting predictions that it may adjust its strategy in the coming year. Many experts forecast that the Fed will proceed cautiously, with some even anticipating a reversal in interest rates to stimulate economic growth.
Expert Projections
Here are insights from 10 experts on when the Federal Reserve’s first rate cut might occur:
February:
Preston Caldwell, a senior US economist at Morningstar, anticipates the Fed starting to cut interest rates in February. He cites the easing of inflation back to the 2% target and the imperative to boost economic growth as driving factors.
March:
A team led by UBS economist Arend Kapteyn and strategist Bhanu Baweja expects the Federal Reserve to cut interest rates starting in March 2024. They foresee this move as a response to the projected US recession in Q2-Q3 2024 and the ongoing slowdown in both headline and core inflation.
Not before April:
David Einhorn, founder and president of hedge fund Greenlight Capital, holds the view that the Fed won’t cut interest rates until the following year. He expresses caution, stating that the market is over-anticipating rate cuts, extending this view through March 2024.
May:
Diane Swonk, chief economist at KPMG US, suggests that the Federal Reserve might not be done raising interest rates. She projects the first rate cut in May 2024, emphasizing the need for sustained cooling of inflation over several quarters.
Between April and June:
In a Reuters poll of economists, the consensus prediction is that the Fed won’t cut interest rates until the April to June period. Tight labor and housing markets, along with inflation concerns, contribute to this cautious approach.
The 2nd quarter of 2024:
David Mericle, chief US economist at Goldman Sachs, projects the Fed’s first interest-rate cut in the second quarter of 2024. He emphasizes the uncertainty around beating inflation and suggests that it is too soon to claim victory over the issue.
Between May and the end of 2024:
Economists from major North American banks foresee the Fed holding off on cutting rates until sometime between May and the end of the next year. Progress on inflation and the belief that the Fed’s tightening cycle has run its course influence this expectation.
The 2nd half of 2024:
Vanguard’s global economics and markets team writes that it doesn’t expect the Fed to start cutting interest rates until the second half of 2024. They suggest that easing may be prompted by a recession or a scenario where inflation falls while economic activity remains robust.
Later next year:
Jeff Morton, a portfolio manager at DWS Group, believes that interest-rate cuts are unlikely until later next year. His forecast envisions a pace of one cut per quarter, barring a severe recession.
As homebuyers navigate the uncertainties in the housing market, keeping a close eye on expert predictions regarding the Federal Reserve’s actions remains a prudent strategy. The timing of interest rate cuts could significantly impact the affordability and accessibility of housing for prospective buyers across the country.
